A joint macroeconomic-yield curve model for Hungary
AbstractThe main goal of this paper is to examine the relationship between macroeconomic shocks and yield curve movements in Hungary. To this end, we apply a Nelson-Siegel type dynamic yield curve model, where changes of the yield curve are driven by two latent factors and some key macro variables that follow a VAR(1) process. The structural macroeconomic shocks are identified by sign restrictions. According to the model, more than sixty percent of the variation of the yield curve factors can be explained by macro shocks. In particular, the monetary policy shock is the most important determinant of the level factor, while the slope factor is mainly driven by risk premium and demand shocks. As for the direction of the responses, monetary policy and supply shocks decrease long forward rates, while premium and demand shocks increase short forward rates. The effect of the premium and monetary policy shocks is strongest in the period when the shock occurs, while for the demand and supply shocks the responses reach their peak only after some delay.
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Bibliographic InfoPaper provided by Magyar Nemzeti Bank (the central bank of Hungary) in its series MNB Working Papers with number 2009/1.
Length: 36 pages
Date of creation: 2009
Date of revision:
yield curve; Nelson-Siegel; factor models; state space models; structural identification.;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-06-03 (All new papers)
- NEP-CBA-2009-06-03 (Central Banking)
- NEP-MAC-2009-06-03 (Macroeconomics)
- NEP-MON-2009-06-03 (Monetary Economics)
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- Bálint Tamási & Balázs Világi, 2011. "Identification of credit supply shocks in a Bayesian SVAR model of the Hungarian economy," MNB Working Papers 2011/7, Magyar Nemzeti Bank (the central bank of Hungary).
- Boril Šopov & Jakub Seidler, 2011.
"Yield Curve Dynamics - Regional Common Factor Model,"
Prague Economic Papers,
University of Economics, Prague, vol. 2011(2), pages 140-156.
- 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.
- Gábor Pellényi, 2012. "The Sectoral Effects of Monetary Policy in Hungary: A Structural Factor Analysis," MNB Working Papers 2012/1, Magyar Nemzeti Bank (the central bank of Hungary).
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