Co-Movements of International Term Structure Slopes and Affine Term Structure Models

This present paper provides both theoretical and empirical analyses of multi-factor joint affine term structure models (JATSMs) in explaining the co-movements of international term structure slopes. We extend the single-country affine term structure models of Dai and Singleton (2000) to a two-country setup. Using the efficient method of moments and reprojection analysis, we find that a JATSM with two square-root factors and one Gaussian factor performs best in capturing the correlation between the US and the UK term structure slopes.