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The Czech Government Yield Curve Decomposition at the Lower Bound

Author

Listed:
  • Michal Dvorák

    (Czech National Bank, Prague, Czech Republic
    Faculty of Finance and Accounting, University of Economics, Prague, Czech Republic)

  • Zlatuše Komárková

    (Czech National Bank, Prague, Czech Republic
    University of Finance and Administration, Prague, Czech Republic)

  • Adam Kucera

    (Czech National Bank, Prague, Czech Republic
    Institute of Economic Studies, Faculty of Social Sciences, Charles University, Prague, Czech Republic)

Abstract

The term structure of yields is an important source of information on market expectations about future macroeconomic developments and investors’ risk perceptions and preferences. This article presents the decomposition of the Czech government bond yield curve into its components using a shadow–rate affine term–structure model and interest rate and credit default swap quotations. The evolution of the components is interpreted in relation to the macro–financial environment embodied by selected variables. The practical use of the decomposition in estimating and interpreting responses of the Czech government bond yield curve to macroeconomic and financial shock is presented using a vector autoregression model. Finally, the results are evaluated in terms of the lower bound proximity.

Suggested Citation

  • Michal Dvorák & Zlatuše Komárková & Adam Kucera, 2019. "The Czech Government Yield Curve Decomposition at the Lower Bound," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 69(1), pages 2-36, February.
  • Handle: RePEc:fau:fauart:v:69:y:2019:i:1:p:2-36
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    References listed on IDEAS

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    Cited by:

    1. Michal Dvorák & Zlatuše Komárková & Adam Kucera, 2019. "The Czech Government Yield Curve Decomposition at the Lower Bound," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 69(1), pages 2-36, February.
    2. Marcin Dec, 2021. "Parsimonious yield curve modeling in less liquid markets," GRAPE Working Papers 52, GRAPE Group for Research in Applied Economics.
    3. 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.

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    More about this item

    Keywords

    decomposition; government bond; yield curve; affine model;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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