Volatility in EMU sovereign bond yields: Permanent and transitory components
Simon Sosvilla-Rivero () and
Amalia Morales-Zumaquero ()
Additional contact information
Amalia Morales-Zumaquero: Departamento de Teoría e Historia Económica, Facultad de Ciencias Económicas y Empresariales, Universidad de Málaga
No 11-03, Working Papers from Asociación Española de Economía y Finanzas Internacionales
This paper explores the evolving relationship in the volatility of sovereign yields in the European Economic and Monetary Union (EMU). To that end, we examine the behaviour for daily yields for 11 EMU countries (EMU-11), during the 2001-2010 period. In a first step, we decompose volatility in permanent and transitory components using Engel and Lee (1999)´s component-GARCH model. Results suggest that transitory shifts in debt market sentiment tend to be less important determinants of bond-yield volatility than shocks to the underlying fundamentals. In a second step, we develop a correlation and causality analysis that indicates the existence of two different groups of countries closed linked: core EMU countries and peripheral EMU countries. Finally, in a third step, we make a cluster analysis that further support our results regarding the existence of two different groups of countries, with different positions regarding the stability of public finance.
Keywords: Conditional variance; Component model; Cluster analysis; Sovereign bond yields; Economic and Monetary Union (search for similar items in EconPapers)
JEL-codes: C32 F33 G12 G13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-eec and nep-fmk
References: Add references at CitEc
Citations Track citations by RSS feed
Downloads: (external link)
Journal Article: Volatility in EMU sovereign bond yields: permanent and transitory components (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: http://EconPapers.repec.org/RePEc:aee:wpaper:1103
Access Statistics for this paper
More papers in Working Papers from Asociación Española de Economía y Finanzas Internacionales Contact information at EDIRC.
Series data maintained by Jose L. Torres ().