Mildly Explosive Dynamics in U.S. Fixed Income Markets
Pierangelo De Pace () and
Massimo Guidolin ()
No 667, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University
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 eight U.S. fixed income yield spreads between September 2002 and April 2018. We find statistically significant evidence of mildly explosive dynamics in six of these spreads, two of which are short/medium-term mortgagerelated spreads. We show that the time intervals characterized by instability that we estimate from these yield spreads capture known episodes of financial and economic distress in the U.S. economy. Mild explosiveness migrates from short-term funding markets to medium- and long-term markets during the Great Financial Crisis of 2007-09. Furthermore, we statistically validate the conjecture that the initial panic of 2007 migrated from segments of the ABX market to other U.S. fixed income markets in the early phases of the financial crisis. JEL Classification: G01, G12, C58, C44 Keywords: Finance, investment analyss, fixed income markets, yield spreads, mildly explosive behavior.
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Journal Article: Mildly explosive dynamics in U.S. fixed income markets (2020)
Working Paper: Mildly Explosive Dynamics in U.S. Fixed Income Markets (2020)
Working Paper: Mildly Explosive Dynamics in U.S. Fixed Income Markets (2019)
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