Yield Curve Dynamics and Spillovers in Central and Eastern European Countries

By Willy A Hoffmaister, Jorge Roldos, Anita Tuladhar

February 1, 2010

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Willy A Hoffmaister, Jorge Roldos, and Anita Tuladhar. Yield Curve Dynamics and Spillovers in Central and Eastern European Countries, (USA: International Monetary Fund, 2010) accessed November 9, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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.

Subject: Central bank policy rate, Inflation, Real effective exchange rates, Vector autoregression, Yield curve

Keywords: Interest rate, WP

Publication Details

Pages:

59
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2010/051
Stock No:

WPIEA2010051
ISBN:

9781451963328
ISSN:

1018-5941

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