EconPapers    
Economics at your fingertips  
 

Economic volatility and sovereign yields’ determinants: a time-varying approach

Antonio Afonso and Joao Jalles ()

Empirical Economics, 2020, vol. 58, issue 2, No 2, 427-451

Abstract: Abstract Using monthly data for 10 euro area countries between 1999:01 and 2015:12, we take a new three-step methodological approach: first, we inspect the key determinants of 10-year government bond yield spreads; second, we compute country-specific time-varying coefficient models of spreads’ determinants; third, we use these estimates as explanatory variables in panel regressions using output volatility as the dependent variable. We find that better fiscal positions or higher-than-expected economic growth prospects reduce the yield spreads, while increases in the VIX, bid-ask spread, debt-to-GDP ratio or real effective exchange rate appreciation increase the spreads. Moreover, the responsiveness of the yield spread determinants increased in the run-up to the global financial crisis. Finally, for the case of the budget balance and real growth (bid-ask spread, debt-to-GDP ratio, real effective exchange rate and VIX), the larger (higher) in absolute value the corresponding spread’s responsiveness, the lower (higher) the economic volatility.

Keywords: Volatility; Fiscal policy; Bond spreads; Errors-in-variables; Time-varying coefficients; Instrumental variables; Cross-sectional dependence (search for similar items in EconPapers)
JEL-codes: C23 E62 G01 H62 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9) Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1007/s00181-018-1540-6 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
Working Paper: Economic Volatility and Sovereign Yields’ Determinants: a Time-Varying Approach (2016) Downloads
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:spr:empeco:v:58:y:2020:i:2:d:10.1007_s00181-018-1540-6

Ordering information: This journal article can be ordered from
http://www.springer. ... rics/journal/181/PS2

DOI: 10.1007/s00181-018-1540-6

Access Statistics for this article

Empirical Economics is currently edited by Robert M. Kunst, Arthur H.O. van Soest, Bertrand Candelon, Subal C. Kumbhakar and Joakim Westerlund

More articles in Empirical Economics from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

 
Page updated 2021-10-23
Handle: RePEc:spr:empeco:v:58:y:2020:i:2:d:10.1007_s00181-018-1540-6