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A joint macroeconomic-yield curve model for Hungary

Author

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  • Zoltán Reppa

    (Magyar Nemzeti Bank)

Abstract

The 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.

Suggested Citation

  • Zoltán Reppa, 2009. "A joint macroeconomic-yield curve model for Hungary," MNB Working Papers 2009/1, Magyar Nemzeti Bank (Central Bank of Hungary).
    • Handle: RePEc:mnb:wpaper:2009/1
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    File URL: http://www.mnb.hu/letoltes/wp-2009-1.pdf
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    Citations

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    Cited by:

    1. Jin, Xisong & Nadal De Simone, Francisco, 2020. "Monetary policy and systemic risk-taking in the Euro area investment fund industry: A structural factor-augmented vector autoregression analysis," Journal of Financial Stability, Elsevier, vol. 49(C).
    2. Kabundi, Alain & De Simone, Francisco Nadal, 2022. "Euro area banking and monetary policy shocks in the QE era," Journal of Financial Stability, Elsevier, vol. 63(C).
    3. K. Istrefi & A. Piloiu, 2016. "Economic policy uncertainty and inflation expectations," Rue de la Banque, Banque de France, issue 33, november..
    4. Gábor Pellényi, 2012. "The Sectoral Effects of Monetary Policy in Hungary: A Structural Factor Analysis," MNB Working Papers 2012/1, Magyar Nemzeti Bank (Central Bank of Hungary).
    5. Pellényi, Gábor, 2012. "A monetáris politika hatása a magyar gazdaságra. Elemzés strukturális, dinamikus faktormodellel [The sectoral effects of monetary policy in Hungary: a structural factor]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(3), pages 263-284.
    6. Kabundi, Alain & De Simone, Francisco Nadal, 2020. "Monetary policy and systemic risk-taking in the euro area banking sector," Economic Modelling, Elsevier, vol. 91(C), pages 736-758.
    7. Paredes, Joan, 2017. "Subsidising car purchases in the euro area: any spill-over on production?," Working Paper Series 2094, European Central Bank.
    8. 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 (Central Bank of Hungary).
    9. Martina Makarieva, 2021. "Yield curve modelling and forecasting in an undeveloped financial market: The case of Bulgaria," Economic Thought journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 61-83,84-10.
    10. Boril Šopov & Jakub Seidler, 2011. "Yield Curve Dynamics: Regional Common Factor Model," Prague Economic Papers, Prague University of Economics and Business, vol. 2011(2), pages 140-156.

    More about this item

    Keywords

    yield curve; Nelson-Siegel; factor models; state space models; structural identification.;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space 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; Trading Volume; Bond Interest Rates

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