Network connectedness dynamics of the yield curve of G7 countries

Zaghum Umar, Yasir Riaz and David Y. Aharon

International Review of Economics & Finance, 2022, vol. 79, issue C, 275-288

Abstract: Our study examines the connectedness between the sovereign bond yield curve components (Slope, Curvature and Level) of the Group of Seven (G7) countries. Using the framework of Nelson and Siegel we are able to track their connectedness over the long, medium and short-term horizons. The results of the static analysis show an increased connectedness in the long-term as compared to medium and short-term factors, whereas the results of dynamic analysis demonstrate three distinct phases of connectedness over time. Specifically, these phases are characterized by stable, decreasing and then increasing level of connectedness of the G7 system before, during and after the 2008 crisis, respectively. We also find France as well as Germany function as the net transmitters of shocks whereas UK and Japan function as the net receivers of the shocks for all the components of their yield curves. The findings may shed light on the dynamics and interaction of yield curve shocks between these major economies and may be essential for financial market participants such as investors, fund managers, and policy makers, which debt consists a part of their assets allocation.

Keywords: Yield curve; Connectedness analysis; Variance decomposition; G7; Global financial crisis; Spillover; Shocks (search for similar items in EconPapers)
JEL-codes: C53 E43 F36 G12 G17 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:79:y:2022:i:c:p:275-288

DOI: 10.1016/j.iref.2022.02.052

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