Yield Curve Dynamics and Spillovers in Central and Eastern European Countries, Issues 2010-2051
International Monetary Fund, Feb 1, 2010 - Business & Economics - 59 pages
This paper applies the models used to study yield curve dynamics and spillovers in the U.S. and other countries to Central and Eastern European countries (CEE countries). Using the Diebold, Rudebusch, and Aruoba (2006) dynamic version of the Nelson-Siegel representation of the yield curve, the paper finds that the two-way relationship between macroeconomic and financial variables in the CEE countries is similar to the one in mature economies. However, inflation shocks have very little persistence in the CEE countries, owing to the strong convergence trends in these countries-which tend to re-anchor expectations faster. Increased convergence in policies and market integration over time are associated with a stronger correlation between the levels of the yield curves, while the curves slopes are more driven by idiosyncratic factors. Shifts in the euro yield curve are transmitted both to interest rates and inflation expectations in the CEE countries-and transmission is stronger after 2004.
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Modeling the Yield Curve and Spillovers
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analysis area yield curve basis points bond markets calculations convergence curvature Curvature Factor CZE HUN POL Czech Republic Descriptive Statistics Diebold estimated Euro Adoption Announcement euro area yield ﬁnd ﬁrst ﬂattening ﬂu global components Global Factor GVAR Hungary and Poland Hungary’s impact impulse responses increase January 2000-April lags Lehman Brothers level factor linkages long-run inﬂation expectations macro variables Macroeconomic Variables Median Yield Curve monetary policy months Nbturity Nbnth Nelson-Siegel no-arbitrage NS factors p-value Panel percent percentage points Piazzesi Poland’s announcement Poland’s Euro Adoption policy rates principal component principle component analysis REER reﬂecting regional component Republic and Hungary Republic and Poland Response of Macroeconomic Response of Yield Rudebusch second subsample shiﬁ Slope Factor Source Speciﬁcally spillover effects stylized fact suggests Table three CEE countries three countries tightening variance decompositions vector autoregressive xwus yield curve dynamics Yield Curve Shocks yield factors