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Interest Rate Term Structure in Latvia in the Monetary Policy Context

Author

Listed:
  • Jelena Zubkova

    (Bank of Latvia)

Abstract

This paper examines applicability of various models of the yield curve construction to the Latvian money and government securities markets, and analyses the information content implied in the yield curve. The rejection of hypothesis about the existence of a zero risk premium leads to an inference that forward rates in general do not ensure unbiased forecasts of spot rates, and the pure interest rate expectations theory cannot be applied in interest rate forecasting. Long-term interest rates contain a risk premium that is other than zero. This conforms well with the results obtained from studies conducted on the financial markets of developed countries.

Suggested Citation

  • Jelena Zubkova, 2003. "Interest Rate Term Structure in Latvia in the Monetary Policy Context," Working Papers 2003/03, Latvijas Banka.
    • Handle: RePEc:ltv:wpaper:200303
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    term structure of interest rates; risk premium; the Nelson–Siegel model;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)

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