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Uncertainty in Euro area and the bond spreads

Author

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  • Gkillas, Konstantinos
  • Tsagkanos, Athanasios
  • Svingou, Argyro
  • Siriopoulos, Costas

Abstract

We investigate potential mean and volatility spillovers among sovereign bond yield spreads for five peripheral countries of the euro area. We focus on Greece, Ireland, Italy, Portugal and Spain during the European sovereign debt crisis. We propose a bootstrap bias-corrected bivariate Vector Autoregressive Moving Average (VARMA), GARCH-in-Mean, asymmetric BEKK model, and find that the level and the volatility of a bond yield spread are mainly dependent on its own past volatility, and thus, its past shocks mainly affect its volatility. Based on our findings, we suggest that the number one priority of the European policymakers be the economic and financial integration of the European peripheral countries into the core.

Suggested Citation

  • Gkillas, Konstantinos & Tsagkanos, Athanasios & Svingou, Argyro & Siriopoulos, Costas, 2020. "Uncertainty in Euro area and the bond spreads," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 537(C).
    • Handle: RePEc:eee:phsmap:v:537:y:2020:i:c:s0378437119315109
    DOI: 10.1016/j.physa.2019.122643
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    References listed on IDEAS

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    3. Yousaf, Imran & Beljid, Makram & Chaibi, Anis & Ajlouni, Ahmed AL, 2022. "Do volatility spillover and hedging among GCC stock markets and global factors vary from normal to turbulent periods? Evidence from the global financial crisis and Covid-19 pandemic crisis," Pacific-Basin Finance Journal, Elsevier, vol. 73(C).

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