A joint macroeconomic-yield curve model for Hungary

Zoltán Reppa

No 2009/1, MNB Working Papers from Magyar Nemzeti Bank (Central Bank of Hungary)

Abstract: The main goal of this paper is to examine the relationship between macroeconomic shocks and yield curve movements in Hungary. To this end, we apply a Nelson-Siegel type dynamic yield curve model, where changes of the yield curve are driven by two latent factors and some key macro variables that follow a VAR(1) process. The structural macroeconomic shocks are identified by sign restrictions. According to the model, more than sixty percent of the variation of the yield curve factors can be explained by macro shocks. In particular, the monetary policy shock is the most important determinant of the level factor, while the slope factor is mainly driven by risk premium and demand shocks. As for the direction of the responses, monetary policy and supply shocks decrease long forward rates, while premium and demand shocks increase short forward rates. The effect of the premium and monetary policy shocks is strongest in the period when the shock occurs, while for the demand and supply shocks the responses reach their peak only after some delay.

Keywords: yield curve; Nelson-Siegel; factor models; state space models; structural identification. (search for similar items in EconPapers)
JEL-codes: C32 E43 E44 G12 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2009
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (10)

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