Longer-term Yield Decomposition: An Analysis of the Czech Government Yield Curve

The term structure of yields is an important source of information on market expectations about future macroeconomic developments and investors' risk perceptions and preferences. This paper presents the methodology used by the Czech National Bank to obtain such information. It describes the dec...

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Bibliographic Details
Published inIDEAS Working Paper Series from RePEc
Main Authors Kucera, Adam, Dvorak, Michal, Komarek, Lubos, Komarkova, Zlatuse
Format Paper
LanguageEnglish
Published St. Louis Federal Reserve Bank of St. Louis 01.01.2017
Subjects
Decomposition
Macroeconomics
Yield
Yield curve
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Summary:The term structure of yields is an important source of information on market expectations about future macroeconomic developments and investors' risk perceptions and preferences. This paper presents the methodology used by the Czech National Bank to obtain such information. It describes the decomposition of the Czech government bond yield curve into its components. The evolution of those components is interpreted in relation to the macro-financial environment, as embodied by selected variables. The practical use of the decomposition in estimating and interpreting the responses of the Czech government bond yield curve to macroeconomic and financial shocks is presented using a vector autoregression model.