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Short and Long-run Behaviour of Long-term Sovereign Bond Yields

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  • António Afonso
  • Christophe Rault

Abstract

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).

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Bibliographic Info

Paper provided by ISEG - School of Economics and Management, Department of Economics, University of Lisbon in its series Working Papers Department of Economics with number 2010/19.

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Date of creation: Nov 2010
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Handle: RePEc:ise:isegwp:wp192010

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Postal: Department of Economics, ISEG - School of Economics and Management, University of Lisbon, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL
Web page: https://aquila1.iseg.ulisboa.pt/aquila/departamentos/EC

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Keywords: long-term yields; EU; financial integration; panel cointegration; bootstrap.;

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References

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  5. António Afonso, 2005. "Ricardian Fiscal Regimes in the European Union," Working Papers Department of Economics 2005/18, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
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Cited by:
  1. António Afonso & Michael G. Arghyrou & Alexandros Kontonikas, 2012. "The determinants of sovereign bond yield spreads in the EMU," Working Papers Department of Economics 2012/36, ISEG - School of Economics and Management, Department of Economics, University of Lisbon.
  2. Laura Jaramillo & Yuanyan Sophia Zhang, 2013. "Real Money Investors and Sovereign Bond Yields," IMF Working Papers 13/254, International Monetary Fund.

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