The stability of government bond markets’ equilibrium and the interdependence of lending rates

Paulo Rodrigues, Philipp Sibbertsen and Michelle Voges
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Michelle Voges: Leibniz University Hannover

Empirical Economics, 2024, vol. 67, issue 6, No 3, 2503-2538

Abstract: Abstract In this paper, we introduce test procedures for no fractional cointegration against possible breaks to a fractional cointegrating relationship in a segment of the data. We base the proposed tests on the supremum of the Hassler and Breitung (Econom Theor 22(6):1091–1111, 2006) test statistic for no cointegration over possible breakpoints in the long-run equilibrium. We show that the new tests correctly standardized converge to the supremum of a Chi-squared distribution and that this convergence is uniform. An in-depth Monte Carlo analysis provides results on the finite sample performance of our tests. We then use the new procedures to investigate whether there was a dissolution of fractional cointegrating relationships between the yields of government bonds of eleven EMU countries (Spain, Italy, Portugal, Ireland, Greece, Belgium, Austria, Finland, the Netherlands, Germany and France) as a consequence of the European debt crisis and to understand the degree of interdependence of lending rates to non-financial corporations across these eleven countries.

Keywords: Fractional cointegration; Persistence breaks; Hassler–Breitung test; Changing long-run equilibrium (search for similar items in EconPapers)
JEL-codes: C12 C32 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1007/s00181-024-02623-x

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