International effects of a compression of euro area yield curves

Martin Feldkircher, Thomas Gruber and Florian Huber

Journal of Banking & Finance, 2020, vol. 113, issue C

Abstract: In this paper, we use a Bayesian global vector autoregressive model to analyze the macroeconomic effects of a flattening of euro area yield curves. Our findings indicate positive effects on real activity and prices, both within the euro area as well as in neighboring economies. Spillovers transmit through an exchange rate channel and a broad financial channel. We complement our analysis by conducting a portfolio optimization exercise. Our results show that multi-step-ahead forecasts conditional on the euro area yield curve shock improve Sharpe ratios relative to other investment strategies.

Keywords: Unconventional monetary policy; Spillovers; GVAR; Minimum variance portfolio (search for similar items in EconPapers)
JEL-codes: C30 E32 E52 F41 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (18)

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Working Paper: International effects of a compression of euro area yield curves (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbfina:v:113:y:2020:i:c:s037842661930072x

DOI: 10.1016/j.jbankfin.2019.03.017

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