Advanced Search
MyIDEAS: Login to save this paper or follow this series

A Factor Model of the Term Structure of Interest Rates and Risk Premium Estimation for Latvia's Money Market

Contents:

Author Info

  • Viktors Ajevskis
  • Kristine Vitola

Abstract

The paper presents the analysis of risk premium of the interest rate term structure for the Latvian money market. On the back of the approach used by F. Diebold, G. Rudebusch and B. Aruoba, it has been assumed that the coefficients of the Nelson–Siegel model are unobservable therefore the model of this research paper has been estimated using the Kalman filter. The risk premium behaviour has been obtained for interest rates of different maturities and forecasting horizons between May 2000 and July 2005. The results obtained indicate that the amount of the risk premium was significant and its volatility substantial between 2000 and 2002. In post-2002 period, its behaviour gradually stabilised and was marked by a downward trend after 2004.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bank.lv/public_files/images/img_lb/izdevumi/english/citas/factor_model.pdf
Download Restriction: no

File URL: http://www.macroeconomics.lv/sites/default/files/factor_model.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Latvijas Banka in its series Working Papers with number 2006/01.

as in new window
Length:
Date of creation: 13 Feb 2006
Date of revision:
Handle: RePEc:ltv:wpaper:200601

Contact details of provider:
Postal: K. Valdemara iela 2a, LV-1050 Riga
Phone: +371 702 2300
Fax: +371 702 2420
Email:
Web page: http://www.bank.lv/
More information through EDIRC

Related research

Keywords: term structure of interest rates; risk premium; the Nelson–Siegel model; the Kalman filter;

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Charles L. Evans & David Marshall, 2001. "Economic determinants of the nominal treasury yield curve," Working Paper Series, Federal Reserve Bank of Chicago WP-01-16, Federal Reserve Bank of Chicago.
  2. Evans, Charles L. & Marshall, David A., 1998. "Monetary policy and the term structure of nominal interest rates: Evidence and theory," Carnegie-Rochester Conference Series on Public Policy, Elsevier, Elsevier, vol. 49(1), pages 53-111, December.
  3. Jeffrey A. Frankel & Cara S. Lown, 1991. "An Indicator of Future Inflation Extracted From the Steepness of the Interest Rate Yield Curve Along Its Entire Length," NBER Working Papers 3751, National Bureau of Economic Research, Inc.
  4. Diebold, Francis X. & Piazzesi, Monica & Rudebusch, Glenn D., 2005. "Modeling bond yields in finance and macroeconomics," CFS Working Paper Series 2005/03, Center for Financial Studies (CFS).
  5. Andrew Ang & Monika Piazzesi, 2001. "A No-Arbitrage Vector Autoregression of Term Structure Dynamics with Macroeconomic and Latent Variables," NBER Working Papers 8363, National Bureau of Economic Research, Inc.
  6. Barros Luís, Jorge & Cassola, Nuno, 2001. "A two-factor model of the German term structure of interest rates," Working Paper Series, European Central Bank 0046, European Central Bank.
  7. Pilegaard, Rasmus & Durré, Alain & Evjen, Snorre, 2003. "Estimating risk premia in money market rates," Working Paper Series, European Central Bank 0221, European Central Bank.
  8. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-89, October.
  9. Francis X. Diebold & Canlin Li, 2003. "Forecasting the Term Structure of Government Bond Yields," NBER Working Papers 10048, National Bureau of Economic Research, Inc.
  10. Gregory R. Duffee, 2002. "Term Premia and Interest Rate Forecasts in Affine Models," Journal of Finance, American Finance Association, American Finance Association, vol. 57(1), pages 405-443, 02.
  11. Knez, Peter J & Litterman, Robert & Scheinkman, Jose Alexandre, 1994. " Explorations into Factors Explaining Money Market Returns," Journal of Finance, American Finance Association, American Finance Association, vol. 49(5), pages 1861-82, December.
  12. Francis X. Diebold & Glenn D. Rudebusch & S. Boragan Aruoba, 2004. "The Macroeconomy and the Yield Curve: A Dynamic Latent Factor Approach," NBER Working Papers 10616, National Bureau of Economic Research, Inc.
  13. Shiller, Robert J. & Huston McCulloch, J., 1990. "The term structure of interest rates," Handbook of Monetary Economics, Elsevier, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 1, chapter 13, pages 627-722 Elsevier.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:ltv:wpaper:200601. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ivars Tillers).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.