Correlation changes between the risk-free rate and sovereign yields of euro area countries

Roberto De Santis () and Michael Stein

No 1979, Working Paper Series from European Central Bank

Abstract: We study correlations between the risk-free rate and sovereign yields of ten euro area countries using smooth transition conditional correlation GARCH (STCC-GARCH) specifications, controlling for credit risk in mean and variance equations and conditioning non-linearly to liquidity risk. Correlations are state-dependent and heterogeneous across jurisdictions. Using panel vector autoregression models, we identify the macro factors influencing the correlations: interbank credit risk, the Greek crisis, and break-up risk. We show that the European Central Bank JEL Classification: G12, G15

Keywords: euro area; government bonds; monetary policy; smooth transition models (search for similar items in EconPapers)
Date: 2016-11
New Economics Papers: this item is included in nep-cba and nep-eec
Note: 185689
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20161979

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