Short- and long-run behaviour of long-term sovereign bond yields

Abstract

Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. This study assesses the short and long-run behaviour of long-term sovereign bond yields in OECD countries, for the period 1973-2008. We employ a dynamic panel approach to reflect financial and economic integration, and to increase the performance and accuracy of the tests. Given the existence of cross-country dependence regarding sovereign yields and its determinants, we resort to simulation and bootstrap methods for the analysis. Results based on the Common Correlated Effect estimator of Pesaran (2006) and on Panel Error Correction Models to sort out short-and long-run fiscal developments show that in addition to common movements in sovereign yields, investors also consider country differences arising from specific factors (inflation, budgetary and current account imbalances, real effective exchange rates, and liquidity). Terms of use: Documents inJEL-Code: C23, E43, E62, G15, H62.

Quantitative Easing and Exuberance in Government Bond Markets: Evidence from the ECB's Expanded Asset Purchase Program

“…Fiscal and trade-related variables, such as the debt-to-GDP ratio and current account ratio, appear to be important drivers in many studies (Afonso & Rault;, Bernoth & Erdogan, 2012Costantini et al, 2014;Georgoutsos and Migiakis, 2013;Maltritz, 2012;Poghosyan, 2014;Rivero and Morales-Zumaquero, 2015). Macroeconomic variables such as the real GDP growth and inflation are also significant fundamental drivers (Afonso and Rault, 2015;Poghosyan, 2014;Costantini et al 2014). In addition, some papers include financial variables such as a proxy for the risk free rate or short term interest rate and stress and volatility on financial markets (De Haan et al, 2014;Poghosyan, 2014).…”

The impact of fiscal positions on government bond yields in CEE countries

“…They conclude that the recent chronic fiscal imbalances have put significant upward pressures on interest rates. Afonso and Rault (2010) adopt a dynamic panel approach to analysing the relationship between long-term real interest rate and fiscal variables. The period under investigation is 1973-2008, and the sample refers to 17 OECD countries.…”

Economic volatility and sovereign yields’ determinants: a time-varying approach

“…There is a core set of variables that are prevalent in the literature looking at the determinants of sovereign bond yield spreads. Such determinants cover broadly the following areas: the importance of international risk factors (via indexes of US stock market implied volatility), for instance, Codogno et al (2003), Geyer et al (2004); the issue of credit risk, reflecting the probability of default (via indicators of fiscal behaviour) as for instance in Elmendorf and Mankiw (1999), Ardagna et al (2004), Manganelli and Wolswijk (2009), Afonso and Rault (2015); and the question of liquidity risk (via bid-ask spreads), see notably Favero et al (2010) and Arghyrou and Kontonikas (2012).…”