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Yield Curve Dynamics and Spillovers in Central and Eastern European Countries

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Author Info

  • Alexander W. Hoffmaister
  • Jorge Roldos
  • Anita Tuladhar

Abstract

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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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 10/51.

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Length: 59
Date of creation: 01 Feb 2010
Date of revision:
Handle: RePEc:imf:imfwpa:10/51

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Related research

Keywords: Central and Eastern Europe; Economic models; International bond markets; Regional shocks; Spillovers; inflation; correlation; monetary policy; correlations; monetary fund; econometrics; descriptive statistics; statistics; equation; standard error; survey; covariance; central bank; vector autoregression; time series; monetary economics; monetary authority; standard deviation; monetary policy decisions; inflation-targeting; empirical framework; conditional expectation; explanatory power; national bank; empirical estimation; forecasting; monetary stance; predictions; normal distribution; time series analysis; polynomial; monetary authorities; regression equation; money market; monetary policies;

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Citations

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Cited by:
  1. Vilimir Yordanov, 2012. "The Bulgarian Foreign and Domestic Debt – A No-Arbitrage Macrofinancial View," William Davidson Institute Working Papers Series wp1032, William Davidson Institute at the University of Michigan.
  2. Afonso, António & Martins, Manuel M.F., 2012. "Level, slope, curvature of the sovereign yield curve, and fiscal behaviour," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1789-1807.
  3. Boril Šopov & Jakub Seidler, 2010. "Yield Curve Dynamics: Regional Common Factor Model," Working Papers IES 2010/17, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Aug 2010.
  4. International Monetary Fund, 2012. "Macrofinance Model of the Czech Economy," IMF Working Papers 12/78, International Monetary Fund.
  5. António Afonso & Manuel M. F. Martins, 2010. "Level, Slope, Curvature of Sovereign Yield Curve and Fiscal Behaviour," Working Papers Department of Economics 2010/23, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  6. Nathan Porter & Nuno Cassola, 2011. "Understanding Chinese Bond Yields and their Role in Monetary Policy," IMF Working Papers 11/225, International Monetary Fund.

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