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An Affine Factor Model of the Greek Term Structure

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Author Info

  • Hiona Balfoussia

    ()
    (Bank of Greece)

Abstract

This paper aims to contribute to our understanding of the dynamics driving the Greek term structure of nominal interest rates and to explore their possible macro- economic determinants. A canonical, Vasicek-type latent affine factor model of the Greek term structure is estimated on data spanning the period March 1999 to February 2007. This framework allows us to directly examine the impact of the extracted factors on the shape of the yield curve over time and on the associated price and amount of risk in the term structure. In line with the related literature, three latent factors, i.e. a "level" factor, a "slope" factor and a "curvature" factor, appear to capture most of the time variation in the Greek nominal term structure of interest rates and to drive its dynamics. The evolution of these factors over time is examined on the basis of business cycle theory and related to macroeconomic fundamentals of the Greek economy.

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File URL: http://www.bankofgreece.gr/BogEkdoseis/Paper200872.pdf
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Bibliographic Info

Paper provided by Bank of Greece in its series Working Papers with number 72.

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Length: 34 pages
Date of creation: May 2008
Date of revision:
Handle: RePEc:bog:wpaper:72

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Web page: http://www.bankofgreece.gr
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Related research

Keywords: Term structure; Affine factors; Stochastic discount factor; Kalman filter;

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Cited by:
  1. Milan Sojic & Ljiljana Djurdjevic, 2008. "Monetary Policy Objectives and Istruments used by the Privileged National Bank of the Kingdom of Serbia (1884 - 1914)," Working Papers 87, Bank of Greece.
  2. Alexander Apostolides, 2008. "How Similar to South-Eastern Europe were the Islands of Cyprus and Malta in terms of Agricultural Output and Credit? Evidence during the Interwar Period," Working Papers 80, Bank of Greece.
  3. Sophia Lazaretou, 2008. "Banking and Central Banking in Pre-WWII Grecce: Money and Currency Developments," Working Papers 86, Bank of Greece.
  4. Yuksel Gormez, 2008. "Banking in Turkey: History and Evolution," Working Papers 83, Bank of Greece.
  5. Roumen Avramov & Dragana Gnjatovic, 2008. "Stabilization Policies in Bulgaria and Yugoslavia During Communism's Terminal Years : 1980s Economic Visions in Retrospect," Working Papers 81, Bank of Greece.
  6. Zarko Lazarevic, 2008. "Banking Performance in South-Eastern Europe During the Interwar Period," Working Papers 79, Bank of Greece.

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