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Bank of Latvia

3/2006 The Role of Production Progress and Human Capital in the Economic Growth of Latvia ( 367 KB)
Aleksejs Melihovs, Gundars Davidsons

Abstract
The paper sets a goal to assess the significance of production progress and human capital for the Latvian economy and to estimate long-term growth rates of the country's economic development. The authors made an attempt to construct a production function using non-linear modelling. In order to improve the production function model for Latvia, the authors augmented the model by human capital approximation.

Key words: production function, non-linear modelling, human capital, total factor productivity

JEL classification codes: C32, E23, J24, O47
2/2006 Latvia's Macroeconomic Model ( 930 KB)
Konstantins Benkovskis, Dainis Stikuts

Abstract
The paper presents the first version of Latvia's Macroeconomic Model (LMM) built using the features and structure of an Area-Wide Model (AWM) for the euro area and Multi-Country Model (MCM) for a typical country block of the European System of Central Banks. This is one of the first attempts to create an econometric model that captures the Latvian economy as a whole and simultaneously modells the supply and demand sides, price and fiscal blocks, and the external sector.

Key words: macroeconomic model, Latvia

JEL classification codes: C3, C5, E12, E17
1/2006 A Factor Model of the Term Structure of Interest Rates and Risk Premium Estimation for Latvia's Money Market ( 670 KB)
Viktors Ajevskis, Kristine Vitola

Abstract
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 model of this research paper has been estimated using the Kalman filter. The risk premium behaviour has been obtained for interest rates of different maturities and forecasting horizons between May 2000 and July 2005. The results obtained indicate that the amount of the risk premium was significant and its volatility substantial between 2000 and 2002. In post-2002 period, its behaviour gradually stabilised and was marked by a downward trend after 2004.

Key words: term structure of interest rates, risk premium, the Nelson–Siegel model, the Kalman filter

JEL classification codes: C32, D84, E43, E47, G10