MULTI-COUNTRY STUDY OF YIELD CURVE DYNAMICS IN A MONETARY POLICY FRAMEWORK: AN OPEN ECONOMY PERSPECTIVE Igor Lojevsky

Size: px

Start display at page:

Download "MULTI-COUNTRY STUDY OF YIELD CURVE DYNAMICS IN A MONETARY POLICY FRAMEWORK: AN OPEN ECONOMY PERSPECTIVE Igor Lojevsky"

Hope Carroll
6 years ago
Views:

1 MULTI-COUNTRY STUDY OF YIELD CURVE DYNAMICS IN A MONETARY POLICY FRAMEWORK: AN OPEN ECONOMY PERSPECTIVE Igor Lojevsky

2 Oulne. Movaon 2. Execuve summary 3. Mehodology of he sudy Leraure revew Nelson-Segel approach Macroeconomcs, moneary polcy and he yeld curve Macro-fnancal model consrucon and hypoheses esng 4. Resuls Macro-fnancal modelng resuls Moneary polcy oucomes 2

3 Movaon The man movaon for hs research has been orgnaed from he nably of moneary/economc auhores around he word o ancpae he mng, severy and consequences of he curren economc crses Unconvenonal measures by Cenral Banks around he world (QE, QE2 and QE3, LTRO - I,II, Operaon Tws, ec ) have been done and sll connue o be done on a naonal bass along However, n a fas globalzng world exernal envronmen facors seems o play a leadng role n he developmen of he world economy One of he key objecves of polcy makers, economc and fnancal nsuons s he undersandng of he behavor of soveregn yeld curves he anchor for fnancal sysems all over he world - and s dependence on he ousde shocks and spllover effecs 3

4 The man goal of research: Execuve Summary To assesses he role of exernal facors on he dynamcs of he soveregn yeld curve and he effcency of dfferen ypes of he moneary polcy n he newly developng envronmen The followng seps were performed n order o reach hs goal: 6 counres wh acve bond placemen polcy were chosen and classfed by he ype of moneary polcy (exchange rae argeng or nflaon argeng) accordng o IMF 2008 classfcaon Nelson-Segel model was esmaed for each soveregn yeld curve over he perod of In order o reveal he facors ha nfluence he yeld curves, Vecor Auoregressons ha lnk laen varables and fundamenal facors were esmaed for 7 larges economes wh dfferen exchange rae regmes 4

5 Leraure Revew: Yeld Curve Esmaon The research ress on he followng papers: Debold, L (2006) proposed Nelson-Segel model o be used for yeld curve forecasng, provded nerpreaon for level, slope and curvaure. In addon, showed ha he model provdes he mos accurae resuls for he long-erm forecasng. Debold, Rudebusch, Aruoba (2006) esmaed a model ha lnks yeld curve usng laen facors and observable macroeconomc varables. Srong evdence of he effecs of macro varables on fuure movemens n he yeld curve were found and evdence for a reverse nfluence as well. Hoffmaser, Roldos, Tuladhar (200) found ha he wo-way relaonshp beween macroeconomc and fnancal varables n he CEE counres s smlar o he one n maure economes. 5

6 Leraure Revew: Macroeconomc Polcy Debold, L, Yue (2008) exraced global and counry-specfc yeld facors from he erm srucure of governmen bonds n he US, Germany, Japan, and he UK. The auhors found ha global yeld facors do exs and are economcally mporan. Espada, Ramos-Franca (2008) found ha shocks ha are perceved o have a perssen effec on nflaon affec he level of he yeld curve, a posve demand shock leads o an upward flaenng shf; he flaenng of he curve s explaned by boh he moneary polcy response and he me-varyng erm prema. Rudebusch, Svensson (998) show ha polcy rules ha are conssen wh nflaon argeng n a small macroeconomc model of he US economy should ake no accoun nflaon forecass. Moreover, he laer s cenral for good polcy rules under nflaon argeng. 6

3 2 996 997 3 2 996 36 60 998 997 999 36 60 998 999 96 20 240 360 2000 200 96 20 240 360 2000 2002 200 2003 2002 2004 2003 2005

2006 2007 2008 2009 200 20 Yeld Curves Dynamcs: DM All over he world, excep Japan, yelds wnessed moderaon along wh he sar of

0-20 20-30 30-40 40-50 50-60 60-70 70-80 Japan BFV Yeld Curve Germany BFV Yeld Curve 40 80 3.50 70 30 60 2.50 50 20 40.50 0 30 20 0.

7 Yeld Curves Dynamcs: DM All over he world, excep Japan, yelds wnessed moderaon along wh he sar of moneary easng cycles Japan s raes dd no show sgnfcan cyclcaly over he las decade US BFV Yeld Curve Japan BFV Yeld Curve Germany BFV Yeld Curve BFV- Bloomberg Far Value

2002 3 2 2003 2006 36 60 2004 96 2005 2007 240 20 2006 360 2007 2008 2008 2009 2009 200 3 2 996 997 36 60 998

Yeld Curves Dynamcs: EM Brazl BFV Yeld Curve Chnas BFV Yeld Curve 80 70 70 60 60 50 50 40 40 30 30 20 20 0 0

40-50 50-60 60-70 Russa BFV Yeld Curve 00 90 80 70 60 50 40 30 20 0 - - - 0 0-20 20-30 30-40 40-50 50-60 60-70

8 Yeld Curves Dynamcs: EM Brazl BFV Yeld Curve Chnas BFV Yeld Curve Inda BFV Yeld Curve Russa BFV Yeld Curve

9 Nelson-Segel Model One of he mos popular approaches for he yeld curve modelng was proposed by Nelson and Segel n 987 y e e () 2 3 e Accordng o BIS (2005), Nelson-Segel model s one of he mos wdely used among Cenral Banks β, β 2, β 3 are he so called level, slope and curvaure parameers of he yeld curve y (τ) yeld o maury τ a me, λ hump shape parameer Cenral Banks of Belgum, Fnland, France, Germany, Ialy, Norway, Span, and Swzerland, use modfcaons of hs model for esmang zero-coupon yeld curves 9

10 Movaon for Nelson-Segel Model There are a leas hree reasons for he populary of he Nelson- Segel model:. Easy o esmae 2. By consrucon he model provdes yelds for connuous maures ha are no covered by he daa sample renderng he model as an nerpolaon and exrapolaon ool for analyss, who ofen are neresed n yelds a maures ha are no drecly observable 3. The coeffcens have meanngful nerpreaon: Level effec can be lnked o long-run nflaon expecaons Slope facor correlaes well wh predcable nflaon and busness cycle componens Curvaure effec s relaed o real neres rae movemens no lnked o sandard macroeconomc condons 0

11 Macroeconomc Model Ths paper assumes ha he economy can be descrbed by he followng equaons: Aggregae supply: Aggregae demand: Ineres raes pary: Moneary polcy rule: MP q q d d y y d d ) ( ) ( ) ( * 4 * 3 * 2 IS E b E x b b x x ) 3( 2 AS x a E a a 3 2 q f f Im c Ex c E E E q c c q q ) ( ) (

12 Types of Moneary Polcy The IMF classfes he counres by he ype of moneary polcy Accordng o he laes classfcaon ou of 70 counres: 5 had an exchange rae anchor 44 argeed nflaon Classfcaon of counres chosen for hs research: Moneary Polcy Framework Exchange rae anchor U.S. dollar Euro Compose Hong Kong Bulgara Russa Brazl Norway Venezuela Denmark* Sngapore Czech Rep. Poland Chna Slovak Rep.* Germany** Uned Saes Noe: * - parcpaon n ERM II, ** - parcpaon n he European Economc and Moneary Unon Source: IMF, 2008 Inflaon argeng framework Inda Japan 2

13 YTD,% YTD,% YTD,% YTD,% Yeld Curve modelng resuls USA, Germany, Maury, monhs Yeld Curve Fed Model +/- 2SE Maury, monhs Yeld Curve Fed Model +/- 2SE Japan, Brazl, Maury, monhs Yeld Curve Fed Model +/- 2SE Maury, monhs Yeld Curve Fed Model +/- 2SE 3

14 YTD,% YTD,% YTD,% YTD,% Yeld Curve modelng resuls Denmark, Norway, Maury, monhs Yeld Curve Fed Model +/- 2SE Maury, monhs Yeld Curve Fed Model +/- 2SE Poland, Czech Republc, Maury, monhs Yeld Curve Fed Model +/- 2SE Maury, monhs Yeld Curve Fed Model +/- 2SE 4

15 YTD,% YTD,% YTD,% YTD,% Yeld Curve modelng resuls Inda, Chna, Maury, monhs Yeld Curve Fed Model +/- 2SE Maury, monhs Yeld Curve Fed Model +/- 2SE Sngapore, Russa, Maury, monhs Yeld Curve Fed Model +/- 2SE Maury, monhs Yeld Curve Fed Model +/- 2SE 5

16 YTD,% YTD,% YTD,% YTD,% Yeld Curve modelng resuls Bulgara, Slovaka, Maury, monhs Yeld Curve Fed Model +/- 2SE Maury, monhs Yeld Curve Fed Model +/- 2SE Hong Kong, Venezuela, Maury, monhs Yeld Curve Fed Model +/- 2SE Maury, monhs Yeld Curve Fed Model +/- 2SE 6

17 Macro-fnancal Model Esmaon The mehodology s based on he procedure by Hoffmaser, Roldos, Tuladhar (200): Take generc soveregn yeld curves comprsed of dfferen bonds denomnaed n he local currences (where applcable) Parameerze yeld curves usng Nelson-Segel approach Oban esmaes of coeffcens β, β 2, β 3, whch represen level, slope, curvaure Esmae VAR model lnkng level, slope, curvaure o fundamenal parameers of he economy 7

18 β esmaed level parameer of yeld curve β 2 esmaed slope parameer of yeld curve β 3 esmaed curvaure of yeld curve y [log(cpi ), log(ip ),log(reer ), log(rate ), log(ex ), log(im )] Macro-fnancal model consrucon , ,, n n n n n n n n n n n n n n n n y L b L a L a L a y y L b L a L a L a y L b L a L a L a y L b L a L a L a

19 Sgnfcance of Moneary Polcy Loadngs The sgnfcance of he loadng mples he dfferen behavor of he cenral bank: d 3 = 0 bank s manly focused on exchange rae argeng d 4 = 0 bank s manly focused on nflaon argeng 9 MP q q d d y y d d ) ( ) ( ) ( * 4 * 3 * 2

20 Vecor Auoregresson Esmaes Sample (adjused): 996M06 20M0 Included observaons: 76 afer adjusmens -sascs n [ ] USA equaon equaon 2 equaon 3 equaon 4 equaon 5 equaon 6 equaon 7 BETA BETA2 BETA3 CPI IP REER RATE BETA(-) 0.663*** 009*** *** [6.78] [3.39] [.5] [-0.78] [08] [0.78] [2.56] BETA2(-) -03* 0*** 0.533** *** [-.76] [.99] [2.32] [-.32] [-06] [0.85] [3.83] BETA3(-) 0 082*** 0.822*** *** [0.5] [3.98] [79] [5] [9] [.3] [79] CPI(-) *** ** -03*** [-5] [-0.97] [0.98] [264] [-.34] [2.32] [-35] IP(-) -0.87*.546** 29 08** 0.846*** *** [-.68] [.99] [8] [2.5] [9.64] [-0.0] [3.84] REER(-) ** *** -005*** [-09] [-7] [-0.86] [-2] [6] [56] [-2.92] RATE(-) 5.867* *** -5734** *** [.84] [-2.73] [-2.33] [.37] [2] [-.0] [8.5] C *** ** *** [-9] [37] [26] [-0.3] [-0.52] [0.54] [77] D(EX(-2)).29*** *** [2.7] [-.5] [0.97] [-.2] [-3.95] [-.3] [-0.8] D(IM(-2)) -9***.5** *** [-33] [28] [-04] [-.35] [3.69] [-.2] *** 00** -00** 00*** [.0] [0.90] [-.58] [3.55] [23] [-23] [2.62] R-squared AIC -280 "*" - sgnfcan a 0 % level Schwarz creron "**" - sgnfcan a 5 % level "***" - sgnfcan a % level 20

21 USA: Impulse Responses Response o Cholesky One S.D. Innovaons ± 2 S.E. Response of BET A o CPI Response of BET A o IP Response of BETA o REER Response of BET A o RAT E Response of BET A2 o CPI.6 Response of BET A2 o IP.6 Response of BETA2 o REER.6 Response of BETA2 o RATE - Response of BET A3 o CPI - Response of BET A3 o IP - Response of BETA3 o REER - Response of BETA3 o RATE

22 USA: Esmaon Resuls Level and slope are nfluenced by ndusral producon,.e. GDP growh plays sgnfcan role n changes of he erm srucure Expors affec level and slope of he yeld curve. An ncrease n Expors leads o apprecaon of dollar and smulae nomnal raes o declne Pas levels of nflaon does no have any sgnfcan nfluence boh on level and slope, moreover, an ncrease n nflaon causes deprecaon of USD Polcy rae has subsanal nfluence on all hree yeld curve parameers A subsanal dependence of Polcy rae on pas values of yeld curve parameers, nflaon, ndusral producon and REER should also be menoned 22

23 Vecor Auoregresson Esmaes Sample (adjused): 998M06 20M03 Included observaons: 54 afer adjusmens -sascs n [ ] Germany equaon equaon 2 equaon 3 equaon 4 equaon 5 equaon 6 equaon 7 BETA BETA2 BETA3 CPI IP RATE REER BETA(-) 0.894*** 0.33*** *** 048*** 006*** 00 [9.70] [2.73] [0.37] [34] [5.80] [2.59] [-0.76] BETA2(-) 02.6*** *** 042*** 005*** 00 [0] [0.80] [0.88] [2.99] [5.64] [2.69] [-08] BETA3(-) 0 054*** 0.89*** *** 00 [0.53] [3.6] [200] [-0.78] [0.80] [5.58] [-0.74] CPI(-) *** [-0.5] [-0] [0.76] [3.9] [7] [-00] [-0.64] IP(-) ** ** 0.889*** 00-0 [-] [2.] [-0.5] [27] [284] [.57] [-0.36] RATE(-) ** * -554*** 087*** 0.34 [-0.5] [-29] [-] [-.90] [-6.60] [2.77] [0.85] REER(-) * *** [-.66] [0.66] [-0.50] [0.38] [-0.] [0.9] [37.82] C ** *** 2.636*** 2.368*** [0.36] [2.6] [0.82] [4.3] [6] [39] [-0] D(EX(-6)) -52** 0.958* [-2] [.68] [-0.8] [0.33] [-.55] [.62] [-04] D(IM(-6)) 0.665* -0.66* * 00-0 [.90] [-.73] [-0.69] [0.39] [.9] [-0.58] *** [-9] [05] [-.0] [35] [-0.9] [0.32] [0.30] R-squared AIC "*" - sgnfcan a 0 % level Schwarz creron -298 "**" - sgnfcan a 5 % level "***" - sgnfcan a % level 23

24 Germany: Impulse Responses Response o Cholesky One S.D. Innovaons ± 2 S.E. Response of BET A o CPI Response of BET A o IP Response of BET A o RAT E Response of BETA o REER Response of BET A2 o CPI Response of BET A2 o IP Response of BET A2 o RAT E Response of BETA2 o REER -.8 Response of BET A3 o CPI -.8 Response of BET A3 o IP -.8 Response of BET A3 o RAT E -.8 Response of BETA3 o REER

25 Germany: Esmaon Resuls Inflaon does no have an mpac on he erm srucure parameers Indusral Producon and Polcy rae nfluence slope of he yeld curve REER s one of man deermnans of level Lags of slope and curvaure also have sgnfcan effec on he yeld curve parameers Expors and Impors play sgnfcan role n deermnaon of level and slope 25

26 Vecor Auoregresson Esmaes Sample: 998M06 20M0 Included observaons: 52 -sascs n [ ] Japan BETA(-) BETA2(-) BETA3(-) CPI(-) IP(-) REER(-) RATE(-) C EX(-6) IM(-6) BETA BETA2 BETA3 CPI IP REER RATE 0.994*** * -008** -04** *** [2.6] [-03] [-.77] [-25] [-2.53] [-.2] [3.75] * -55* -008** -068*** *** [04] [.78] [-.75] [-2] [-2.94] [-0.97] [30] *** * 00*** [.36] [-0.92] [2.7] [0.56] [0.35] [-.82] [4.88] 5.87* -648* *** *** -0 [.68] [-.73] [0.7] [243] [-0.50] [3] [-.53] *** [0.73] [-0.56] [-9] [0.93] [5.76] [-07] [7] * *** 00 [0.6] [-0.60] [-.8] [-0.70] [-8] [26.72] [-0.72] * 7556* *** *** [-.65] [.79] [.7] [.7] [2.78] [-06] [6.9] * *** *** [5] [-.68] [-5] [-0.90] [-2.77] [-00] [4.33] -0.52* 04*.365** 03*** [-.9] [.65] [2.56] [4.75] [0.69] [0.9] [-0.94] 0.50* *** [.78] [-6] [-0.82] [-4.95] [7] [-0.7] [-0.5] R-squared AIC "*" - sgnfcan a 0 % level Schwarz creron "**" - sgnfcan a 5 % level "***" - sgnfcan a % level 26

27 Japan: Impulse Responses Response o Cholesky One S.D. Innovaons ± 2 S.E. Response of BET A o CPI Response of BETA o IP Response of BET A o RAT E Response of BET A o REER Response of BET A2 o CPI Response of BETA2 o IP Response of BET A2 o RAT E Response of BET A2 o REER Response of BET A3 o CPI - Response of BETA3 o IP - Response of BET A3 o RAT E - Response of BET A3 o REER

28 Japan: Esmaon Resuls Inflaon has consderable effec on he erm srucure parameers Polcy rae nfluences only he level of he yeld curve: more aggressve moneary polcy leads o a decrease n he slope of he yeld curve Expors play sgnfcan role on he yeld curve parameers deermnaon. I logcally concdes wh he subsanal role of Expors n Japan s Economy 28

29 Vecor Auoregresson Esmaes Sample (adjused): 2000M02 20M0 Included observaons: 32 afer adjusmens -sascs n [ ] Brazl equaon equaon 2 equaon 3 equaon 4 equaon 5 equaon 6 equaon 7 BETA BETA2 BETA3 CPI IP RATE REER BETA(-) ** 00*** 00 00*** -006*** [-0.30] [.58] [26] [55] [-.35] [4.84] [-2.95] BETA2(-) *** *** [0.76] [2.8] [-07] [4] [0.93] [0.76] [-46] BETA3(-) -09* *** 00*** -00* 00*** 00 [-.83] [6] [3.73] [54] [-.69] [4.65] [-9] CPI(-) ** 8.734* ** 03*** 038* -0** 08 [-2.3] [.66] [2.8] [260.54] [.66] [-2.30] [.59] IP(-) *** 0.79*** 07*** -0.84* [0.53] [-0.50] [-0.68] [43] [65] [6.78] [-.70] RATE(-) ** 0.99*** -0.0 [-0.60] [0.50] [04] [05] [-2.8] [53.67] [-0.53] REER(-) 278** * -378* -02*** 02-0*** 0.869*** [2.0] [-.79] [-.87] [-3.82] [7] [-2.70] [22.36] C *** [0.39] [-04] [-0] [-.35] [2.94] [-.59] [.34] D(EX(-6)) 6.745* * [.75] [-.83] [-.57] [0.8] [-09] [0.74] [0] D(IM(-3)) -.732** 3** 2088** -004** [-23] [2.8] [2.3] [-26] [06] [0.50] [07] R-squared AIC "*" - sgnfcan a 0 % level Schwarz creron "**" - sgnfcan a 5 % level "***" - sgnfcan a % level 29

30 Brazl: Impulse Responses Response o Cholesky One S.D. Innovaons ± 2 S.E. 5 Response of BET A o CPI 5 Response of BET A o IP 5 Response of BET A o RAT E 5 Response of BET A o REER Response of BET A2 o CPI 4 Response of BET A2 o IP 4 Response of BET A2 o RAT E 4 Response of BET A2 o REER Response of BET A3 o CPI 0 Response of BET A3 o IP 0 Response of BET A3 o RAT E 0 Response of BET A3 o REER

31 Brazl: Esmaon Resuls Inflaon and REER have a subsanal effec on he yeld curve parameers, raher han Indusral Producon and Polcy rae Tha may be a consequence of a very hgh nflaon n Brazl ha creaes serous problems o he nvesors Impors and Expors nfluence he erm srucure. The Impors effec s absorbed much faser han Expors 3

32 Vecor Auoregresson Esmaes Sample: 2004M0 20M0 Included observaons: 85 -sascs n [ ] Chna equaon equaon 2 equaon 3 equaon 4 equaon 5 equaon 6 BETA BETA2 BETA3 CPI IP REER BETA(-) * [-.35] [.66] [.3] [0.56] [.3] [0.33] BETA2(-) [-0.8] [.8] [0.50] [0.5] [0] [02] BETA3(-) [-3] [.2] [.0] [06] [0.58] [0.86] CPI(-) -4.82* 5.87* * 0.927*** 0.372** -05 [-.66] [.88] [.83] [2.9] [27] [-0.32] IP(-) *** 055** 03 [-0] [0.58] [-0.33] [6.8] [25] [0.35] REER(-) * -033*** 02*** [0.33] [-0.9] [-0.62] [.96] [-4.53] [23.67] C * ** [-.3] [4] [.84] [0.8] [24] [-.56] EX(-3) ** 00 [-0.53] [0.63] [0.39] [03] [-2.38] [0.2] IM(-3) 2.855** -376** -5.3** [20] [-2.32] [-20] [-04] [0.9] [09] RATE * [8] [-8] [-.94] [-0.75] [-6] [3] R-squared AIC -6 "*" - sgnfcan a 0 % level Schwarz creron "**" - sgnfcan a 5 % level "***" - sgnfcan a % level 32

33 Chna: Impulse Responses Response o Cholesky One S.D. Innovaons ± 2 S.E. Response of BETA o CPI Response of BETA o IP Response of BETA o REER Response of BETA2 o CPI - Response of BETA2 o IP - Response of BETA2 o REER Response of BETA3 o CPI Response of BETA3 o IP Response of BETA3 o REER

34 Chna: Esmaon Resuls Poor daa avalably, very low qualy of fng, non-economc orgn of erm srucure of neres raes due o he planned economy and heavly regulaed publc deb marke Polcy rae does no have a sgnfcan nfluence on he whole yeld curve Inflaon affecs real exchange rae Impors have a sgnfcan mpac on he yeld curve srucure 34

35 Vecor Auoregresson Esmaes Sample (adjused): 2000M02 20M0 Included observaons: 32 afer adjusmens -sascs n [ ] Inda equaon equaon 2 equaon 3 equaon 4 equaon 5 equaon 6 equaon 7 BETA BETA2 BETA3 CPI IP REER RATE BETA(-) 0.894*** 097* ** *** [8.60] [.86] [0.8] [20] [0.67] [08] [3.75] BETA2(-) -08* 0.854*** * 0* -005*** 00 [-.85] [8] [.5] [-.85] [.82] [-32] [0.67] BETA3(-) 049* 063** 0.677*** 002** * 00 [.75] [27] [8.80] [25] [-0.] [.93] [-0] CPI(-) -.828** *** 0.606*** -0.07*** 00 [-2.7] [-0.92] [4] [65] [67] [-3.60] [.39] IP(-) 03** *** 082*** -005** [22] [-0.8] [-0.2] [-0] [6.86] [3.63] [-2.30] REER(-) * *** 00 [-0.55] [0.39] [.75] [-.58] [5] [22] [-04] RATE(-) * ** *** [.7] [-2.5] [-0] [-8] [-.38] [0.58] [3.83] C ** *** [-.60] [2] [03] [.55] [3] [-0.3] [4.87] D(EX(-6)) [0] [0.3] [-08] [-0.69] [09] [0.36] [0.92] D(IM(-6)) [-0.95] [-0.0] [0.76] [-07] [-0.30] [0.98] [-0.37] R-squared AIC -2 "*" - sgnfcan a 0 % level Schwarz creron "**" - sgnfcan a 5 % level "***" - sgnfcan a % level 35

36 Inda: Impulse Responses Response o Cholesky One S.D. Innovaons ± 2 S.E..6 Response of BET A o CPI.6 Response of BET A o IP.6 Response of BET A o REER.6 Response of BETA o RATE.6 Response of BET A2 o CPI.6 Response of BET A2 o IP.6 Response of BET A2 o REER.6 Response of BETA2 o RATE Response of BET A3 o CPI Response of BET A3 o IP Response of BET A3 o REER Response of BETA3 o RATE

37 Inda: Esmaon Resuls Slope s nfluenced by Inflaon, Indusral Producon and Polcy rae There s no sgnfcan lnkage of slope and level wh he open economy parameers such as Expors, Impors and REER Polcy rae has a sgnfcan negave effec on he slope of he Indan yeld curve ha fully suppors he heory 37

38 Russa Vecor Auoregresson Esmaes Sample (adjused): 2006M05 200M0 Included observaons: 45 afer adjusmens -sascs n [ ] BETA(-) BETA2(-) BETA3(-) CPI(-) IP(-) REER(-) C D(EX(-3)) D(IM(-3)) RATE BETA BETA2 BETA3 CPI IP REER.373*** -.78*** * [89] [-3.6] [.5] [9] [0.68] [-.7] 08*** * ** [2.58] [-0.85] [.9] [0] [-03] [-22] 0.69*** -08***.337*** ** [3.69] [-3.3] [3.8] [.35] [0.56] [-2.34] ** 0.999*** * [8] [3] [-25] [76.9] [-0] [.72] [0.73] [0] [-09] [0.86] [0.94] [7] ** *** [-0.33] [24] [-3] [.63] [0.3] [5.8] *** *** [-09] [-3.5] [37] [-02] [0.92] [05] 4.349*** *** 0.86* 05 [2.9] [-02] [-.3] [-2.82] [.74] [0] -258*** ** [-2.70] [-0.34] [0] [2.3] [-.64] [-0.82] *** *** [0.8] [34] [-30] [0.2] [-09] [0.30] R-squared AIC -64 "*" - sgnfcan a 0 % level Schwarz creron -43 "**" - sgnfcan a 5 % level "***" - sgnfcan a % level 38

39 Russa: Impulse Responses Response o Cholesky One S.D. Innovaons ± 2 S.E. Response of BETA o CPI Response of BETA o IP Response of BETA o REER Response of BETA2 o CPI 4 Response of BETA2 o IP 4 Response of BETA2 o REER Response of BETA3 o CPI -4 4 Response of BETA3 o IP -4 4 Response of BETA3 o REER

40 Russa: Esmaon Resuls Polcy rae affecs he slope and he curvaure of he yeld curve Grea nfluence of he open macro parameers, such as Impors and Expors, on he level of he yeld curve, whle REER nfluences he slope Bascally, Impors and Expors deermne he level due o he expor revenue orened profle of he economy and mpor orened consumpon 40

41 lags of Summary of modelng resuls USA Germany Japan Brazl Level (β ) Slope(β 2 ) Curvaure (β 3 ) IP, Rae, Level, Slope, Ex, Im REER, Ex, Im Level, CPI, Rae, Ex, Im Curvaure, CPI, REER, Ex, Im IP Rae, Level, Slope, Im Level, Curvaure, IP, Ex, Im Slope, CPI, Rae Slope, CPI, REER, Ex, Im Slope, Curvaure, Rae Curvaure Level, slope curvaure, REER, EX Level, Curvaure, CPI REER Chna CPI, Im Level, CPI, Im CPI, Im, Rae Inda Russa Level, Slope, Curvaure, CPI, IP, Rae Slope, Level, Curvaure, Ex, Im Level, Slope, Curvaure, Rae Level, Curvaure, REER, Rae Curvaure, REER Slope, Curvaure, CPI, REER 4

42 Summary /2 Accordng o he obaned resuls can concluded ha for DM moneary polcy nfluences manly he level and he slope of he yeld curve For EM, such as Brazl and Chna Polcy rae does no affec he yeld curve, whle n Russa Polcy rae s sgnfcan for he level parameer, n Inda for boh he level and he slope Despe he fac ha n general polcy should nfluence he yeld curve parameers, due o he counry specfc marke organzaon may no always be rue All over he sample, here s an evdence ha he open economy facors maer for he formaon of he level and he slope of he yeld curve 42

43 Summary 2/2 In he fas globalzng world counres become more and more nerconneced, conrols on capal flows are geng weaker and pegged exchange rae polcy may lead o mpor no only nflaon ha was proven n he vas volume of papers relaed o open macro polcy. bu also he mpor he whole srucure of neres raes As a consequence, he nroducon of macroeconomc facors, ncludng open economy parameers, no he model of he laen parameers of he Nelson-Segel yeld curve may lead o a beer f and undersandng of he underlyng processes of he yeld curve dynamcs The IMF classfcaon canno be represenave as he Cenral Banks ry o pursue mulple arges and he concluson on he nfluence of he nflaon argeng/exchange rae argeng canno be made 43

44 Appendx A Bloomberg Far Value curve consrucon: Mos lqud bonds are aken for consrucon of he yeld curve wh smlar rang Pecewse lnear nerpolaon s performed o ge he sandardzed maures up o 30 years If here are no secures over he long ends,.e. 30 year bond, hen he se of sandardzed maures s shorened o he avalably of he bond wh he larges erm 44

Dynamic Relationship and Volatility Spillover Between the Stock Market and the Foreign Exchange market in Pakistan: Evidence from VAR-EGARCH Modelling

Dynamic Relationship and Volatility Spillover Between the Stock Market and the Foreign Exchange market in Pakistan: Evidence from VAR-EGARCH Modelling Dynamc Relaonshp and Volaly pllover Beween he ock Marke and he Foregn xchange marke n Paksan: vdence from VAR-GARCH Modellng Dr. Abdul Qayyum Dr. Muhammad Arshad Khan Inroducon A volale sock and exchange