The paper is a generalisation of L. E. O. Svensson's simplest test of target zone credibility and the drift-adjustment method in the context of anticipated planned repegging. In 1994, the Latvian lats was pegged to the SDR basket of currencies but on 30 December 2004 the lats was pegged to the...

The paper presents the analysis of risk premium of the interest rate term structure for the Latvian money market. On the back of the approach used by F. Diebold, G. Rudebusch and B. Aruoba, it has been assumed that the coefficients of the Nelson–Siegel model are unobservable therefore the...

The study aims at evaluating how useful the application of models using large panels of data in forecasting Latvia's GDP is. Two factor models have been used: the Stock-Watson factor model and the generalised dynamic factor model. The forecast findings by the two models have been compared with...

This paper develops a convergence model of the term structure of interest rates in the context of entering the EMU. Compared with the other models developed so far in this field, our model specification ensures convergence of the domestic short-term interest rates to the euro area ones. We...

In this paper we estimate a small open economy DSGE model for Latvia following Lubik and Schorfheide (2007) using Bayesian methods. The estimates of the structural parameters fall within plausible ranges. Simulation results suggest that under inflation targeting inflation turns out to be more...

We evaluate implications of inflation targeting versus fixed exchange rate regime for the UK, Sweden, Poland, the Czech Republic, Estonia, Latvia and Lithuania, i.e. seven EU non-euro area countries. To this end, we estimate a small open economy DSGE model and simulate a model under estimated...

The severe repercussions of the latest financial crisis highlighted the crucial role of the financial sector in the propagation of economic and financial shocks. In this paper we analyse the role of financial market frictions in business cycle fluctuations and in the transmission of monetary...

We propose an export price indicator adjusted for non-price factors as a measure of a country's competitiveness. Based on the approach by Broda and Weinstein (2006) who adjust price developments for changes in varieties of imported products, we relax their assumption of unchanged quality over...