Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212590 
Authors: 
Year of Publication: 
2006
Series/Report no.: 
BOFIT Discussion Papers No. 18/2006
Publisher: 
Bank of Finland, Institute for Economies in Transition (BOFIT), Helsinki
Abstract: 
This paper investigates the extent to which the slope of the yield curve in emerging economies predicts domestic inflation and growth. It also examines international financial linkages and how the US and euro area yield curves help to predict.It finds that the domestic yield curve in emerging economies contains in-sample information even after controlling for inflation and growth persistence, at both short and long forecast horizons, and that it often improves out-of-sample forecasting performance.Differences across countries are seemingly linked to market liquidity.The paper further finds that the US and euro area yield curves also contain in- and out-of-sample information for future inflation and growth in emerging economies.In particular, for emerging economies with exchange rates pegged to the US dollar, the US yield curve is often found to be a better predictor than the domestic curves and to causally explain their movements.This suggests that monetary policy changes and short-term interest rate pass-through are key drivers of international financial linkages through movements at the low end of the yield curve.
Subjects: 
emerging economies
yield curve
forecasting
international linkages
JEL: 
E44
F3
C5
Persistent Identifier of the first edition: 
ISBN: 
952-462-844-9
Document Type: 
Working Paper

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