Working Paper Series no. 57: Interest Rate Transmission and Volatility Transmission along the Yield Curve

Abstract

In order to analyse the interest rate transmission mechanism, we study daily Euro-rates term structure for the US, Germany, and the UK between 1983 and 1997. We estimate multivariate VECM-GARCH models, which take into account moste of the usual features of financial data (non-stationarity, cointegration, heteroskedasticity, asymmetric effects) The estimates of these models, allows us to study interest rate transmission as well as volatility transmission along the yield curve. Due to the huge number of the parameters it is quite difficult to interpret the empirical result. To avoid this problem we use the impulse responses framework to examine the transmission mechanism along both the yield and volatility curves.

Sanvi Avouyi-Dovi and Eric Jondeau
January 1999

Classification JEL : E43, G12

Keywords : Term structure, volatility spillovers, impulse response analysis