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Yield Curve Dynamics and Spillovers in Central and Eastern European Countries

Author

Listed:
  • Mr. Willy A Hoffmaister
  • Mr. Jorge Roldos
  • Ms. Anita Tuladhar
Abstract
This paper applies the models used to study yield curve dynamics and spillovers in the U.S. and other countries to Central and Eastern European countries (CEE countries). Using the Diebold, Rudebusch, and Aruoba (2006) dynamic version of the Nelson-Siegel representation of the yield curve, the paper finds that the two-way relationship between macroeconomic and financial variables in the CEE countries is similar to the one in mature economies. However, inflation shocks have very little persistence in the CEE countries, owing to the strong convergence trends in these countries-which tend to re-anchor expectations faster. Increased convergence in policies and market integration over time are associated with a stronger correlation between the levels of the yield curves, while the curves slopes are more driven by idiosyncratic factors. Shifts in the euro yield curve are transmitted both to interest rates and inflation expectations in the CEE countries-and transmission is stronger after 2004.

Suggested Citation

  • Mr. Willy A Hoffmaister & Mr. Jorge Roldos & Ms. Anita Tuladhar, 2010. "Yield Curve Dynamics and Spillovers in Central and Eastern European Countries," IMF Working Papers 2010/051, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2010/051
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    File URL: http://www.imf.org/external/pubs/cat/longres.aspx?sk=23655
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    Citations

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    Cited by:

    1. Afonso, António & Martins, Manuel M.F., 2012. "Level, slope, curvature of the sovereign yield curve, and fiscal behaviour," Journal of Banking & Finance, Elsevier, vol. 36(6), pages 1789-1807.
    2. 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.
    3. Vilimir Yordanov, 2012. "The Bulgarian Foreign and Domestic Debt ??? A No-Arbitrage Macrofinancial View," William Davidson Institute Working Papers Series wp1032, William Davidson Institute at the University of Michigan.
    4. Mr. Nathan Porter & Mr. Nuno Cassola, 2011. "Understanding Chinese Bond Yields and their Role in Monetary Policy," IMF Working Papers 2011/225, International Monetary Fund.
    5. International Monetary Fund, 2012. "Macrofinance Model of the Czech Economy: Asset Allocation Perspective," IMF Working Papers 2012/078, International Monetary Fund.

    More about this item

    Keywords

    WP; interest rate;

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