Mildly Explosive Dynamics in U.S. Fixed Income Markets
Pierangelo De Pace () and
Massimo Guidolin ()
No 324, Globalization Institute Working Papers from Federal Reserve Bank of Dallas
We use a recently developed right-tail variation of the Augmented Dickey-Fuller unit root test to identify and date-stamp periods of mildly explosive behavior in the weekly time series of seven U.S. fixed income yield spreads between September 2002 and January 2015. We find statistically significant evidence of such behavior in six of these spreads. Mild explosivity migrates from short-term funding markets to more volatile medium- and long-term markets during the Great Financial Crisis. For some markets, we statistically validate the conjecture, originally suggested by Gorton (2009a,b), that the financial panic of 2007 initially migrated from segments of the ABX market to other U.S. fixed income markets.
Keywords: fixed income markets; yield spreads; mildly explosive behavior; Finance; investment analysis (search for similar items in EconPapers)
JEL-codes: G01 C58 C44 G12 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2017-08-01, Revised 2019-02-04
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https://www.dallasfed.org/-/media/documents/institute/wpapers/2017/0324r1.pdf Revised paper (application/pdf)
https://www.dallasfed.org/~/media/documents/institute/wpapers/2017/0324.pdf Original paper (application/pdf)
Working Paper: Mildly Explosive Dynamics in U.S. Fixed Income Markets (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:324
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