Interest-Rate Volatility in the Baltics: Issues of Measurement and International Contagion

Scott W. Hegerty ()
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Scott W. Hegerty: Department of Economics, Northeastern Illinois University

Eastern European Business and Economics Journal, 2015, vol. 1, issue 1, 12-27

Abstract: Prior to their entry into the Eurozone, the Baltic countries of Estonia, Latvia, and Lithuania faced a major financial crisis that was brought about by events abroad. This financial risk led to instability in the real economy as well. This study uses monthly data to first model interest-rate volatility as a measure of financial instability before using our preferred volatility measure to test for international spillovers among interest-rate and output fluctuations. Vector Autoregressive (VAR) and Multivariate GARCH methods show that spillovers are more common among Baltic neighbors, particularly involving Latvia, than within individual countries. When European neighbors are added to a multivariate model, Russia’s impact is shown to be larger than that of Germany.

Keywords: Interest Rate Volatility; Baltics; Contagion; Vector Autoregression; GARCH. (search for similar items in EconPapers)
Date: 2015
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