Short-Rate Expectations and Term Premia: Experiences from Hungary and Other Emerging Market Economies

Abstract

This study focuses on the elements of short-dated forward yields in Hungary and other emerging market economies – short-rate expectations and the term premium – and the influences on their behaviour. The rate expectations are proxied by median values of analyst surveys. Principal components analysis shows that, during the sample period 2009–13, rate expectations and term premia in emerging market economies co-moved closely with the corresponding elements of US yields. The term premium appears to have been driven by global news events, and rate expectations less so. As for Hungary, the yield elements periodically followed the dynamics of factors in emerging market economies generally, but country-specific effects seem to have been important as well.

Full publication: The Transmission of Unconventional Monetary Policy to the Emerging Markets

Keywords: Emerging markets, interest rate expectations, principal components, surveys, term premia

JEL Classification: E43, E58, G15