A yield spread perspective on the great financial crisis: Break-point test evidence
AbstractWe use a simple partial adjustment econometric framework to investigate the effects of financial crises on the dynamic properties of yield spreads. We find that crises manifest themselves in the form of substantial disruptions revealed by changes in the persistence of the shocks to spreads as much as by in their unconditional mean levels. Formal breakpoint tests confirm that in the U.S. the Great Financial Crisis has been over approximately since the Spring of 2009 and provide a conservative dating centered around the August 2007–June 2009 dates. However, some yield spread series point to an end of the most serious disruptions as early as in December 2008. Some symptoms of an impending crisis re-appear instead in the second half of 2011. We also uncover evidence that the LSAP program implemented by the Fed in the U.S. residential mortgage market has been effective, in the sense that the risk premia in this market have been uniquely shielded from the disruptive effects of the crisis.
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Bibliographic InfoArticle provided by Elsevier in its journal International Review of Financial Analysis.
Volume (Year): 26 (2013)
Issue (Month): C ()
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Web page: http://www.elsevier.com/locate/inca/620166
Yield spreads; Credit risk; Liquidity risk; Break-point tests; Partial adjustment models;
Other versions of this item:
- Massimo Guidolin & Yu Man Tam, 2010. "A yield spread perspective on the great financial crisis: break-point test evidence," Working Papers 2010-026, Federal Reserve Bank of St. Louis.
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
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- Massimo Guidolin & Francesco Ravazzolo & Andrea Donato Tortora, 2011.
"Myths and facts about the alleged over-pricing of U.S. real estate. Evidence from multi-factor asset pricing models of REIT returns,"
2011/19, Norges Bank.
- Massimo Guidolin & Francesco Ravazzolo & Andrea Donato Tortora, 2011. "Myths and Facts about the Alleged Over-Pricing of U.S. Real Estate. Evidence from Multi-Factor Asset Pricing Models of REIT Returns," Working Papers 416, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
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