nach oben

Empirical Economics

Erschienen in:

01.08.2018

Economic volatility and sovereign yields’ determinants: a time-varying approach

verfasst von: António Afonso, João Tovar Jalles

Erschienen in: Empirical Economics | Ausgabe 2/2020

Einloggen

Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.

search-config

KI-gestützte Suche

Aus

Abstract

Using monthly data for 10 euro area countries between 1999:01 and 2015:12, we take a new three-step methodological approach: first, we inspect the key determinants of 10-year government bond yield spreads; second, we compute country-specific time-varying coefficient models of spreads’ determinants; third, we use these estimates as explanatory variables in panel regressions using output volatility as the dependent variable. We find that better fiscal positions or higher-than-expected economic growth prospects reduce the yield spreads, while increases in the VIX, bid-ask spread, debt-to-GDP ratio or real effective exchange rate appreciation increase the spreads. Moreover, the responsiveness of the yield spread determinants increased in the run-up to the global financial crisis. Finally, for the case of the budget balance and real growth (bid-ask spread, debt-to-GDP ratio, real effective exchange rate and VIX), the larger (higher) in absolute value the corresponding spread’s responsiveness, the lower (higher) the economic volatility.

Nächster Artikel Intertemporal diversification of sub-sovereign debt

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft"

Online-Abonnement

Mit Springer Professional "Wirtschaft" erhalten Sie Zugriff auf:

über 67.000 Bücher
über 340 Zeitschriften

aus folgenden Fachgebieten:

Bauwesen + Immobilien
Business IT + Informatik
Finance + Banking
Management + Führung
Marketing + Vertrieb
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Springer Professional "Wirtschaft+Technik"

Online-Abonnement

Mit Springer Professional "Wirtschaft+Technik" erhalten Sie Zugriff auf:

über 102.000 Bücher
über 537 Zeitschriften

aus folgenden Fachgebieten:

Automobil + Motoren
Bauwesen + Immobilien
Business IT + Informatik
Elektrotechnik + Elektronik
Energie + Nachhaltigkeit
Finance + Banking
Management + Führung
Marketing + Vertrieb
Maschinenbau + Werkstoffe
Versicherung + Risiko

Jetzt Wissensvorsprung sichern!

Jetzt informieren

Nur mit Berechtigung zugänglich

Ludwig (2014b) and Sibbertsen et al. (2014), for example, investigated the stochastic trending behaviour of the spreads. However, such analysis goes beyond the scope of this paper.

The approach proposed by Schlicht (2003) is very similar to that used by Aghion and Marinescu (2008). The main difference is in the computation of the variances \( \sigma_{i}^{2} \). Aghion and Marinescu (2008) use the Markov Chain Monte Carlo (MCMC) method to approximate these variances, while Schlicht (2003) uses a method-of-moments estimator.

We also computed two additional versions of the relative standard deviation using instead the detrended real GDP (from HP and WEO). We also checked both the standard deviation (baseline) measure and the relative counterpart for autocorrelation using the Q-Lung-box test. Using a rolling window may create autocorrelation, but the Q-Lung-box test systematically rejected the null of no first-order autocorrelation, suggesting that there is no autocorrelation. We also tried replacing our baseline proxy of output volatility (based on the simple standard deviation) with an alternative based on a GARCH model of the quarterly real GDP series. Results are kept qualitatively unchanged.

We are aware of literature on the political economy determinants of government bond pricing. For instance, Huang et al. (2015) and Duyvesteyn et al. (2016) discuss the relevance of political risk in affecting government bonds. Exploring such aspects in greater detail goes beyond the scope of this paper. In addition, we also rely on a political economy proxy as instrument in the robustness section below when estimating using a two-stage least squares estimator.

We thank the editor and an anonymous referee for these suggestions.

The country list includes: Austria, Belgium, Finland, France, Greece, Ireland, Italy, Netherlands, Portugal and Spain.

Note that we tested the time-series properties of the set of variables employed in the empirical section (results are omitted for reasons of parsimony) and found evidence pointing to panel stationarity. We relied on Im–Pesaran–Shin and the Maddala–Wu tests.

Note that when estimating Eq. (1) with VIX included, time fixed effects are dropped. VIX captures the global factor that only varies over time but not across units.

Removing Greece and Portugal increases the slope of the fitted line to 0.55 but lowers the R-square to 0.14.

The reason for why X in Eq. (2) is a scalar in the TVC regressions relates to the simple fact that we want to specifically isolate the impact of a given variable. Alternatively, one could have estimated the TVC with all the regressors included simultaneously. Doing so does not qualitatively change the main results.

We thank an anonymous referee for this suggestion.

We thank the editor for this point.

Moreover, we could explore yet additional variables that are known to affect output volatility such as the effect of oil price changes (in line with Wegener et al. 2016). However, taking our panel of countries, first none is an oil exporting country and, second any common exogenous effect is econometrically captured by the time effects.

Acemoglu D, Johnson S, Robinson J, Thaicharoen Y (2003) Institutional causes, macroeconomic symptoms: volatility, crises and growth. J Monet Econ 50:49–123

Acharya V, Drechsler I, Schnabl P (2014) A Pyrrhic victory?—Bank bailouts and sovereign credit risk. J Finance 69(6):2689–2739

Afonso A, Rault C (2015) Short and long-run behaviour of long-term sovereign bond yields. Appl Econ 47(37):3971–3993

Afonso A, Arghyrou M, Kontonikas A (2014a) Pricing sovereign bond risk in the EMU area: an empirical investigation. Int J Finance Econ 19(1):49–56

Afonso A, Gomes P, Taamouti A (2014b) Sovereign credit ratings, market volatility, and financial gains. Comput Stat Data Anal 76:20–33

Aghion P, Marinescu I (2008) Cyclical budgetary policy and economic growth: what do we learn from OECD panel data? NBER Macroecon Annu 2007(22):251–278

Alesina A, De Broeck M, Prati A, Tabellini G (1992) Default risk on government debt in OECD countries. Econ Policy 15:427–451

Ang A, Longstaff F (2013) Systemic sovereign credit risk: lessons from the U.S. and Europe. J Monet Econ 60:493–510

Ardagna S, Caselli F, Lane T (2004) Fiscal discipline and the cost of public debt service: some estimates for OECD Countries. ECB Working Paper 411

Arghyrou M, Kontonikas A (2012) The EMU sovereign debt crisis: fundamentals, expectations and contagion. J Int Financial Mark Inst Money 22:658–677

Attinasi M-G, Checherita C, Nickel C (2009) What explains the surge in euro area sovereign spreads during the financial crisis of 2007-09? ECB Working Paper 1131

Barrios S, Iversen P, Lewandowska M, Setzer R (2009) Determinants of intra-euro-area government bond spreads during the financial crisis. European Commission, Economic Papers 388

Basse T, Kruse R, Wegener C (2017) The walking debt crisis. Department of Economics and Business Economics, Aarhus University, Aarhus

Beber A, Brandt M, Kavajecz K (2009) Flight-to-quality or flight-to-liquidity? Evidence from the euro-area bond market. Rev Financial Stud 22:925–957

Bernoth K, Erdogan B (2012) Sovereign bond yield spreads: a time-varying coefficient approach. J Int Money Finance 31(3):639–656

Bernoth K, Von Hagen J, Schuknecht L (2004) Sovereign Risk Premia in the European Government Bond Market, European Central Bank Working Paper No. 369

Billio M, Caporin M (2010) Market linkages, variance spillovers, and correlation stability: empirical evidence of financial contagion. Comput Stat Data Anal 54:2443–2458

Chiarella C, ter Saskia E, Xue-Zhong H, Wu E (2015) Fear or fundamentals? Heterogeneous beliefs in the European sovereign CDS market. J Empir Finance 32:19–34

Christiansen C (2007) Volatility-spillover effects in European bond markets. Eur Financial Manag 13:923–948

Codogno L, Favero C, Missale A (2003) Yield spreads on EMU government bonds. Econ Policy 18:211–235

de Grauwe P, Ji Y (2013) Self-fulfilling crises in the Eurozone: an empirical test. J Int Money Finance 34:15–36

de Santis R (2012) The euro area sovereign debt crisis: Safe haven, credit rating agencies and the spread of the fever from Greece, Ireland and Portugal. ECB Working Paper 1419

Debrun X, Kapoor R (2010) Fiscal policy and macroeconomic stability: automatic stabilizers work, always and everywhere. IMF Working Paper/10/111

Driscoll JC, Kraay AC (1998) Consistent covariance matrix estimation with spatially dependent panel data. Rev Econ Stat 80(4):549–560. https://doi.org/10.1162/003465398557825 CrossRef

Duyvesteyn J, Martens M, Verwijmeren P (2016) Political risk and expected government bond returns. J Empir Finance 38:498–512

Elmendorf D, Mankiw N (1999) Government debt. In: Taylor J, Woodford M (eds) Handbook of macroeconomics, vol 1C, North-Holland, North-Holland, pp 1615–1669

Engle R, Gallo G, Velucchi M (2012) Volatility spillovers in East Asian financial markets: a MEM-based approach. Rev Econ Stat 94(1):222–223

Erickson T, Whited TM (2000) Measurement error and the relationship between investment and q. J Polit Econ 108:1027–1057

Erickson T, Jiang CH, Whited TM (2014) Minimum distance estimation of the errors-in-variables model using linear cumulant equations. J Econom 183:211–221

Fatás A, Mihov I (2001) Government size and automatic stabilizers. J Int Econ 55:3–28

Fatás A, Mihov I (2013) Policy volatility, institutions, and economic growth policy volatility, institutions, and economic growth. Rev Econ Stat 95(2):362–376

Favero C, Missale A (2012) Sovereign spreads in the euro area. Which prospects for a Eurobond? Econ Policy 27(70):231–273

Favero C, Pagano M, von Thadden E-L (2010) How does liquidity affect government bond yields? J Financial Quant Anal 45:107–134

Furceri D (2007) Is government expenditure volatility harmful for growth? A cross-country analysis. Fiscal Stud 28(1):103–120

Furceri D, Karras G (2007) Country size and business cycle volatility: scale really matters. J Jpn Int Econ 21(4):424–434

Gambacorta L, Hofmann B, Peersman G (2014) The effectiveness of unconventional monetary policy at the zero lower bound: a cross-country analysis. J Money Credit Bank 46:615–642

Gerlach S, Schulz A, Wolff G (2010) Banking and sovereign risk in the Euro area. CEPR Discussion Paper No. 7833

Geyer A, Kossmeier S, Pichler S (2004) Measuring systemic risk in EMU government yield spreads. Rev Finance 8:171–197

Henisz W (2013) Political Constraint Index (POLCON). Wharton School of the University of Pennsylvania, Philadelphia

Huang T, Wu F, Yu J, Zhang B (2015) International political risk and government bond pricing. J Bank Finance 55:393–405

Hui C, Chung T (2011) Crash risk of the euro in the sovereign debt crisis of 2009–2010. J Bank Finance 35:2945–2955

Jones C, Lamont O, Lumsdaine R (1998) Macroeconomic news and bond market volatility. J Financial Econ 47:315–337

Klomp J, de Hann J (2009) Political institutions and economic volatility. Eur J Polit Econ 25(3):311–326

Lane PR (2003) The cyclicality of fiscal policy: evidence from the OECD. J Public Econ 87:2661–2675

Leschinski C, Bertram P (2017) Time varying contagion in emu government bond spreads. J Financial Stab 29:72–91

Ludwig A (2014a) A unified approach to investigate pure and wake-up-call contagion: evidence from the Eurozone’s first financial crisis. J Int Money Finance 48:125–146

Ludwig A (2014b) Credit risk-free sovereign bonds under Solvency II: a cointegration analysis with consistently estimated structural breaks. Appl Financial Econ 24:811–823

Manganelli S, Wolswijk G (2009) What drives spreads in the euro-area government bond market? Econ Policy 24:191–240

Meinusch A, Tillmann P (2016) The macroeconomic impact of unconventional monetary policy shocks. J Macroecon 47:58–67

Mody A (2009) From Bear Sterns to Anglo Irish: How Eurozone sovereign spreads related to financial sector vulnerability. IMF Working Paper 09/108

Rodrik D (1998) Who needs capital account convertibility? In: Kenen P (ed) Should the IMF pursue capital-account convertibility? Princeton Essays in International Finance, No 207

Saka O, Fuertes A, Kalotychou E (2015) ECB policy and Eurozone fragility: was De Grauwe right? J Int Money Finance 54:168–185

Schlicht E (1985) Isolation and aggregation in economics. Springer, Berlin

Schlicht E (1988) Variance estimation in a random coefficients model. Paper presented at the Econometric Society European Meeting Munich 1989. http://www.semverteilung.vwl.unimuenchen.de/mitarbeiter/es/paper/schlicht\_variance-estimation-inrandom-coeff-model.pdf. Accessed Mar 2017

Schlicht E (2003) Estimating time-varying coefficients with the VC program. University of Munich Discussion Paper 2003–06

Schlicht E, Ludsteck J (2006) Variance estimation in a random coefficients model. IZA Discussion Paper No. 2031

Sgherri S, Zoli E (2009) Euro area sovereign risk during the crisis. IMF Working Paper 09/222

Sibbertsen P, Wegener C, Basse T (2014) Testing for a break in the persistence in yield spreads of EMU government bonds. J Bank Finance 41:109–118

Talvi E, Végh C (2000) Tax base variability and procyclical fiscal policy. NBER Working Paper 7499

Wegener C, Basse T, Kunze F, von Mettenheim H-J (2016) Oil prices and sovereign credit risk of oil producing countries: an empirical investigation. Quant Finance 16:1961–1968

Whaley R (2000) The Investor fear gauge. J Portf Manag 26:12–17

Titel: Economic volatility and sovereign yields’ determinants: a time-varying approach
verfasst von: António Afonso
João Tovar Jalles
Publikationsdatum: 01.08.2018
Verlag: Springer Berlin Heidelberg
Erschienen in: Empirical Economics / Ausgabe 2/2020
Print ISSN: 0377-7332
Elektronische ISSN: 1435-8921
DOI: https://doi.org/10.1007/s00181-018-1540-6

Springer Professional

Abstract

Bitte loggen Sie sich ein, um Zugang zu Ihrer Lizenz zu erhalten.

Sie haben noch keine Lizenz? Dann Informieren Sie sich jetzt über unsere Produkte:

Springer Professional "Wirtschaft"

Springer Professional "Wirtschaft+Technik"

Weitere Artikel der Ausgabe 2/2020

Intertemporal diversification of sub-sovereign debt

Effects of urbanization on food demand in China

The impact of temperature on gaming productivity: evidence from online games

The impact of hedging and trading derivatives on value, performance and risk of European banks

Shock and awe? Fiscal consequences of terrorism

Inflation targeting and exchange rate volatility in emerging markets

Premium Partner