Changing Patterns in the Dependence of Long-Term Rates between Poland and Major Financial Centres
12 Pages Posted: 7 Oct 2014
Date Written: August 2014
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.
Keywords: Copulas, dependence, contagion, long-term interest rates, Poland
JEL Classification: C58, G15
Suggested Citation: Suggested Citation