Eastern European Business and Economics Journal

Interest-Rate Volatility in the Baltics: Issues of Measurement and International Contagion

 

 

Scott W. Hegerty

 

Hegerty S. 2015. Interest-Rate Volatility in the Baltics: Issues of Measurement and International Contagion. Eastern European Business and Economics Journal 1(1): 12-27.

 

Full text

 

Reviewers:

 

Kuan Min WANG, Overseas Chinese University, Republic of China, Taiwan;

Bogdan CĂPRARU, Alexandru Ioan Cuza University of Iasi, Romania;

Giuseppina TALAMO, Università Degli Studi Di Enna Kore, Italy.

 

Abstract:

Prior to their entry into the Eurozone, the Baltic countries of Estonia, Latvia, and Lithuania faced a major financial crisis that was brought about by events abroad. This financial risk led to instability in the real economy as well. This study uses monthly data to first model interest-rate volatility as a measure of financial instability before using our preferred volatility measure to test for international spillovers among interest-rate and output fluctuations. Vector Autoregressive (VAR) and Multivariate GARCH methods show that spillovers are more common among Baltic neighbors, particularly involving Latvia, than within individual countries. When European neighbors are added to a multivariate model, Russia’s impact is shown to be larger than that of Germany.

 

Keywords:

Interest Rate Volatility, Baltics, Contagion, Vector Autoregression, GARCH.

 

Language:

English

 

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