Yield Curve Dynamics and Spillovers in Central and Eastern European Countries

Author/Editor:

Alexander W. Hoffmaister ; Jorge Roldos ; Anita Tuladhar

Publication Date:

February 1, 2010

Electronic Access:

Free Full Text (PDF file size is 1575 KB).Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

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.

Series:

Working Paper No. 10/51

Subject:

English

Publication Date:

February 1, 2010

ISBN/ISSN:

9781451963328/1018-5941

Stock No:

WPIEA2010051

Price:

$18.00 (Academic Rate:$18.00)

Format:

Paper

Pages:

59

Please address any questions about this title to publications@imf.org