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2013 | OriginalPaper | Buchkapitel

EMU Sovereign Spreads and Macroeconomic News

verfasst von : Daniela Arru, Davide Iacovoni, Libero Monteforte, Filippo Maria Pericoli

Erschienen in: Public Debt, Global Governance and Economic Dynamism

Verlag: Springer Milan

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Abstract

We investigate the link between macroeconomic news and sovereign spreads in the euro area at weekly frequency. Our focus lies in the role played by macroeconomic announcements. To this aim we augment a standard GARCH model with a synthetic measure for macroeconomic surprises obtained by aggregating deviations between data releases and market expectations on a set of indicators chosen for being closely watched by economic analysts and financial operators. We find that the dissemination of macroeconomic data on the US economy affects the level of sovereign spreads, i.e. the better the news the lower the spreads. Moreover, in many cases the dissemination of bad news on the euro area economy affects negatively the volatility, i.e. the worse the news the higher the volatility.

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The views expressed in this paper are those of the authors and do not involve the responsibility of the institutions to which they belong.

For a complete description of the sources of data on sovereign spreads as well of other time series in the foregoing analysis, see Appendix.

In order to weight the news of each macro-area, we have employed data on Gross Domestic Product in purchasing power parities.

In Figs. 3, 4, 5, 6 we show the weekly series in relation to the business cycle as proxied by weekly changes of industrial production estimated by linear interpolation of monthly figures.

Note that by construction the indicator of good news is always greater or equal to zero, while the indicator of bad news is always lower or equal than zero. In order to simplify the interpretation of the results, in the following we consider the indicator of good news with its (positive) sign, while we consider the indicator of bad news in absolute terms, i.e. without its (negative) sign. By so doing an increase in the (regressor) indicator of bad news corresponds to a situation where operators and analysts are surprised by a state of the economy worse-than-expected.

The series for the World is a weighted average of the news indicators for the macro-areas and it is therefore correlated by construction.

Data on weekly public debt to GDP ratios have been estimated by linear interpolation of quarterly data. For a complete description of the data see Appendix.

The iTraxx is a credit default swap index measuring the price required to hedge against the average risk implied by investment in a set of European stocks.

According to the financial literature, this effect corresponds to a negative correlation between past returns and future volatility.

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Titel: EMU Sovereign Spreads and Macroeconomic News
verfasst von: Daniela Arru
Davide Iacovoni
Libero Monteforte
Filippo Maria Pericoli
Verlag: Springer Milan
Buch: Public Debt, Global Governance and Economic Dynamism
Print ISBN: 978-88-470-5330-4

Electronic ISBN: 978-88-470-5331-1

Copyright-Jahr: 2013
DOI: https://doi.org/10.1007/978-88-470-5331-1_20