This paper investigates changes in persistence caused by the COVID-19 pandemic in the US and EA yield curves. We extract the long-term, short-term and medium-term factors and proxy the persistence by estimating the autoregressive coefficient of each factor. To examine the time-varying effects, we employ a local linear estimation. Our findings suggest that, during the first phases of the pandemic, the US long-term and short-term factors exhibited explosive behaviour while, at the same time, the EA factors diminished in persistence, making the EA yield curve more predictable even though the EA countries were hit by the pandemic somewhat earlier than the US.
- Autoregressive processes
- Term structure
- Time-varying coefficient models
- Yield curve