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 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.
JEL codes: G11, G12, G23
Keywords: Affine model, decomposition, government bond, yield curve
Issued: December 2017
Download: CNB WP No. 12/2017 (pdf, 1,2 MB)