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Macrofinance Model of the Czech Economy; Asset Allocation Perspective

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  • International Monetary Fund

Abstract

The paper developes a VAR macrofinance model of the Czech economy. It shows that yield misalignments from the yields implied by the macrofinance model partially determine subsequent yield changes over three to nine months. These yield misalignments tend to persist for a number of months. This persistence of the misalignments was explained by (a) the fact that the macro-economy influences asset markets only at lower frequencies, (b) the liquidity effect particularly during the times of capital inflows to Czech Republic, and (c) the fact that not all misalignments were greater than their historical one standard deviation.

Suggested Citation

  • International Monetary Fund, 2012. "Macrofinance Model of the Czech Economy; Asset Allocation Perspective," IMF Working Papers 12/78, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:12/78
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=25780
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    References listed on IDEAS

    as
    1. Francis X. Diebold & Monika Piazzesi & Glenn D. Rudebusch, 2005. "Modeling Bond Yields in Finance and Macroeconomics," American Economic Review, American Economic Association, vol. 95(2), pages 415-420, May.
    2. Hordahl, Peter & Tristani, Oreste & Vestin, David, 2006. "A joint econometric model of macroeconomic and term-structure dynamics," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 405-444.
    3. Diebold, Francis X. & Li, Canlin, 2006. "Forecasting the term structure of government bond yields," Journal of Econometrics, Elsevier, vol. 130(2), pages 337-364, February.
    4. Willy W. Hoffmaister & Jorge Roldos & Anita Tuladhar, 2010. "Yield Curve Dynamics and Spillovers in Central and Eastern European Countries," IMF Working Papers 10/51, International Monetary Fund.
    5. GlennD. Rudebusch & Tao Wu, 2008. "A Macro-Finance Model of the Term Structure, Monetary Policy and the Economy," Economic Journal, Royal Economic Society, vol. 118(530), pages 906-926, July.
    6. Cairns, A.J.G. & Pritchard, D.J., 2001. "Stability of Models for the Term Structure of Interest Rates with Application to German Market Data," British Actuarial Journal, Cambridge University Press, vol. 7(03), pages 467-507, August.
    7. Diebold, Francis X. & Rudebusch, Glenn D. & Borag[caron]an Aruoba, S., 2006. "The macroeconomy and the yield curve: a dynamic latent factor approach," Journal of Econometrics, Elsevier, vol. 131(1-2), pages 309-338.
    8. Philippe Robert-Demontrond & R. Ringoot, 2004. "Introduction," Post-Print halshs-00081823, HAL.
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