Behavior of Treasury Bond Rates In The Ce4 Countries- a Cointegration Analysis

Abstract

This article examines the behavior of Treasury bond rates in the CE4 countries. The Grangercausality tests were based on two testing approaches- the vector error correction modeling approach outlined in Toda and Philips. The other is the augmented level VAR modeling with integrated and cointegrated processes (of arbitrary orders) separately introduced by Toda and Yamamoto ( 1995) and Dolado and Llltkepohl ( 1996). Granger-causality tests based on the VECM suggests only unidirectional causal linkages from changes in the Hungarian Treasury bond rates ·to changes in the Treasury bond rates in the Czech Republic, Poland and Slovakia. Test based on the augmented VAR procedure yields similar results from VECM in addition to a very strong unidirectional causality from the Hungarian Treasury to the Slovak bond rates. These empirical findings may be explained by factors such as relatively ineffective governance, the health of the government budget or inadequate institutional frameworks- both before and after the transformation to the market system- in those CE4 countries.