Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/98858
Authors: 
Mesters, Geert
Schwaab, Bernd
Koopman, Siem Jan
Year of Publication: 
2014
Series/Report no.: 
Tinbergen Institute Discussion Paper 14-071/III
Abstract: 
We develop an econometric methodology for the study of the yield curve and its interactions with measures of non-standard monetary policy during possibly turbulent times. The yield curve is modeled by the dynamic Nelson-Siegel model while the monetary policy measurements are modeled as non-Gaussian variables that interact with latent dynamic factors, including the yield factors of level and slope. Yield developments during the financial and sovereign debt crises require the yield curve model to be extended with stochastic volatility and heavy tailed disturbances. We develop a flexible estimation method for the model parameters with a novel implementation of the importance sampling technique. We empirically investigate how the yields in Germany, France, Italy and Spain have been affected by monetary policy measures of the European Central Bank. We model the euro area interbank lending rate EONIA by a log-normal distribution and the bond market purchases within the ECB's Securities Markets Programme by a Poisson distribution. We find evidence that the bond market interventions had a direct and temporary effect on the yield curve lasting up to ten weeks, and find limited evidence that purchases changed the relationship between the EONIA rate and the term structure factors.
Subjects: 
dynamic Nelson-Siegel models
Central bank asset purchases
non-Gaussian
state space methods
importance sampling
European Central Bank
JEL: 
C32
C33
E52
E58
Document Type: 
Working Paper

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