Changing Patterns in the Dependence of Long-Term Rates between Poland and Major Financial Centres

Abstract

The accommodative monetary policy of major central banks has resulted in strong capital inflows into emerging economies. We investigate the extreme dependence – effectively, contagion – between long-term interest rates in core markets and those of Poland in recent years. The issue is particularly important from a financial stability standpoint. Using a copula framework, we demonstrate that the dependence of extreme events has actually eased in recent years as the structure of foreign investment holdings in Poland has become more stable. Given the elevated risk of contagion, however, these developments should not lull one into a false sense of security. The propensity of bond yields to crash in synchrony should be closely monitored, especially in turbulent periods.

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

Keywords: Copulas, dependence, contagion, long-term interest rates, Poland

JEL Classification: C58, G15