Spillover in Euro Area Sovereign Bond Markets

Thomas Conefrey and David Cronin
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David Cronin: Central Bank of Ireland

No 05/RT/13, Research Technical Papers from Central Bank of Ireland

Abstract: This paper applies the Diebold and Yilmaz (2009, 2012) methodology to assess spillovers in euro area sovereign bond markets. Our analysis identifies a number of phases of interaction in those markets in recent years. We find a substantial increase in spillover between euro area sovereign bond markets around the time of the bailout of Bear Stearns in March 2008. The phase of the euro zone crisis from the first Greece bailout in May 2010 until the end of 2011 saw a reversal of the longstanding pattern whereby events in core euro area member state sovereign bond markets exercised a positive net influence on the periphery. In particular, the first Greece bailout coincided with significant positive net spillover from the PIIGS to the core countries. More recently, improved market conditions have seen the pre- 2008 pattern re-established with the core having a stronger net impact on peripheral euro area sovereign bond markets. The analysis points to Greece having become relatively detached from other bond markets since its second bailout in March 2012. The spillover index and its components can be updated on an ongoing basis as new data become available and can provide useful information to policymakers and analysts alike.

Keywords: Spillover index; forecast error variance decomposition; euro area sovereign bond markets; financial stability (search for similar items in EconPapers)
JEL-codes: G01 G15 H6 (search for similar items in EconPapers)
Date: 2013-07
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Spillover in Euro Area Sovereign Bond Markets (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:cbi:wpaper:05/rt/13

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