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Regulatory Changes and Long-run Relationships of the EMU Sovereign Debt Markets: Implications for Future Policy Framework

Author

Listed:
  • Erdinc Akyildirim
  • Shaen Corbet
  • Duc Khuong Nguyene
  • Ahmet Sensoy

Abstract

We estimate the time-varying long-run correlations of European sovereign bond markets to identify specific effects that are attributed to changing European regulatory and political dynamics over the last twenty years. Our empirical results from using the DCC-MIDAS methodology indicate that regulatory changes in Europe have created significant and negative impact on the long-run correlations within the month where the regulation is implemented. This impact still remains in the following months and robust with respect to the trend component of the long-run correlations. A direct implication is that the more the regulations the EU attempts to put in place, the lower the long-run convergence process of sovereign bond markets is. We then analyse the structural shifts in the long-run correlation dynamics with penalized contrasts methodology and try to find out the reasons of these severe changes. Accordingly, some of the structural shifts overlap with the dates of a limited number of regulatory changes, in addition to the major global economic and political events.

Suggested Citation

  • Erdinc Akyildirim & Shaen Corbet & Duc Khuong Nguyene & Ahmet Sensoy, 2019. "Regulatory Changes and Long-run Relationships of the EMU Sovereign Debt Markets: Implications for Future Policy Framework," Working Papers 2019-005, Department of Research, Ipag Business School.
    • Handle: RePEc:ipg:wpaper:2019-005
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    Cited by:

    1. Nader Naifar, 2020. "What Explains the Sovereign Credit Default Swap Spreads Changes in the GCC Region?," JRFM, MDPI, vol. 13(10), pages 1-22, October.

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    More about this item

    Keywords

    DCC-MIDAS; European Union; Sovereign Bonds; Regulation; Financial Crisis;
    All these keywords.

    JEL classification:

    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G01 - Financial Economics - - General - - - Financial Crises
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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