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Volume 69, Issue 1

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The Czech Government Yield Curve Decomposition at the Lower Bound

Dvořák, Michal; Komárková, Zlatuše; Kučera, Adam

Year: 2019   Volume: 69   Issue: 1   Pages: 2-36

Abstract: 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 article presents the decomposition of the Czech government bond yield curve into its components using a shadow–rate affine term–structure model and interest rate and credit default swap quotations. The evolution of the components is interpreted in relation to the macro–financial environment embodied by selected variables. The practical use of the decomposition in estimating and interpreting responses of the Czech government bond yield curve to macroeconomic and financial shock is presented using a vector autoregression model. Finally, the results are evaluated in terms of the lower bound proximity.

JEL classification: G11, G12, G23

Keywords: decomposition, government bond, yield curve, affine model

RePEc: xxx

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