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Global Bonding

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Author Info

  • Tamim Bayoumi
  • Trung Bui

Abstract

This paper uses a novel variant of identification through hetroscedacity to estimate spillovers across U.S., Euro area, Japanese, and UK government bond and equity markets in a vector autoregression. The results suggest that U.S. financial shocks reverberate around the world much more strongly than shocks from other regions, including the Euro area, while inward spillovers to the U.S. from elsewhere are minimal. There is also evidence of two-way spillovers between the UK and Euro area financial markets and spillovers from Europe to Japan. The results also suggest that the uncertainty about the direction of causality of contemporaneous correlations—an issue that other techniques cannot tackle—is the dominant source of uncertainty in the estimated impulse response functions.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/298.

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Length: 26
Date of creation: 20 Dec 2012
Date of revision:
Handle: RePEc:imf:imfwpa:12/298

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Related research

Keywords: Spillovers; United States; Europe; Japan; United Kingdom; International capital markets; Bond markets; External shocks; equity markets; bond yields; financial markets; bonds; government bond; asset markets; international bond; international financial markets; financial volatility; stock market; indexed bond; money markets; stock market indices; term bonds; long-term bonds; sovereign bond; bond yield volatility; government bond yields; government bond markets; international bond market; financial system; financial economics; stock markets;

References

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  1. Olivier Jean Blanchard & Danny Quah, 1988. "The Dynamic Effects of Aggregate Demand and Supply Disturbances," NBER Working Papers 2737, National Bureau of Economic Research, Inc.
  2. Tamim Bayoumi & Andrew Swiston, 2009. "Foreign Entanglements: Estimating the Source and Size of Spillovers Across Industrial Countries," IMF Staff Papers, Palgrave Macmillan, vol. 56(2), pages 353-383, June.
  3. Uhlig, Harald, 2005. "What are the effects of monetary policy on output? Results from an agnostic identification procedure," Journal of Monetary Economics, Elsevier, vol. 52(2), pages 381-419, March.
  4. Michael Ehrmann & Marcel Fratzscher & Roberto Rigobon, 2005. "Stocks, Bonds, Money Markets and Exchange Rates: Measuring International Financial Transmission," NBER Working Papers 11166, National Bureau of Economic Research, Inc.
  5. Lanne, Markku & Lütkepohl, Helmut & Maciejowska, Katarzyna, 2010. "Structural vector autoregressions with Markov switching," Journal of Economic Dynamics and Control, Elsevier, vol. 34(2), pages 121-131, February.
  6. Tamim Bayoumi & Andrew Swiston, 2010. "The Ties that Bind: Measuring International Bond Spillovers Using Inflation-Indexed Bond Yields," IMF Staff Papers, Palgrave Macmillan, vol. 57(2), pages 366-406, June.
  7. Youta Ishii, 2008. "International transmissions in US-Japanese stock markets," Applied Financial Economics, Taylor & Francis Journals, vol. 18(15), pages 1193-1200.
  8. Yang, Jian, 2005. "International bond market linkages: a structural VAR analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 15(1), pages 39-54, January.
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