Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/83598
Authors: 
Reppa, Zoltán
Year of Publication: 
2009
Series/Report no.: 
MNB Working Papers 2009/1
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.
Subjects: 
Yield curve
Nelson-Siegel
factor models
state space models
structural identification
JEL: 
C32
E43
E44
G12
Document Type: 
Working Paper

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