Benchmark bonds interactions under regime shifts

Dimitris Georgoutsos and Petros Migiakis

No 103, Working Papers from Bank of Greece

Abstract: In the present paper we examine interactions among five benchmark ten year government bonds, namely those of the US, Germany, France, Italy and the Netherlands. Our aim is to illustrate empirically a network of interactions existing among the major bond markets of Europe and the US market taking into account shifts in the underlying stochastic processes. For this purpose, and in contrast to the rest of the relevant empirical literature, after specifying the long-run equilibrium relations we estimate the linkages between the bond markets as subject to hidden Markov chains, by applying the Markov Switching Vector Error Correction framework (MS-VECM). This formulation is found to efficiently reflect the shifts brought about by significant economic events, such as the European monetary unification. As a result we illustrate different short-run relations referring to the periods before and after monetary union. Overall, our empirical results indicate that stronger interactions between the markets of the system exist in the period after the EMU. Also, by means of a variance decomposition analysis we assess leader-follower relations which indicate that the benchmark status of bonds has changed since the introduction of the common monetary policy framework in Europe.

Keywords: Financial integration; bond markets; benchmarks; Markov Switching (search for similar items in EconPapers)
JEL-codes: F21 F37 G12 G15 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2009-09
New Economics Papers: this item is included in nep-eec and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.bankofgreece.gr/BogEkdoseis/Paper2009103.pdf Full Text (application/pdf)
Our link check indicates that this URL is bad, the error code is: 403 Forbidden

Related works:
Journal Article: Benchmark Bonds Interactions under Regime Shifts (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bog:wpaper:103

Access Statistics for this paper

More papers in Working Papers from Bank of Greece Contact information at EDIRC.
Bibliographic data for series maintained by Anastasios Rizos ().