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EMU sovereign spreads and macroeconomic news

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  • Arru, Daniela
  • Iacovoni, Davide
  • Monteforte, Libero
  • Pericoli, Filippo Maria

Abstract

We investigate the relationship between macroeconomic news and sovereign spreads in the euro area at weekly frequency. Our focus lies in the role played by macroeconomic announcements. To this aim we augment a standard GARCH model with a synthetic measure for macroeconomic surprises obtained by aggregating deviations between data releases and market expectations on a set of indicators chosen for being closely watched by economic analysts and financial operators. We find that the dissemination of macroeconomic data on the US economy affects the level of sovereign spreads, i.e. the better the news the lower the spreads. Moreover, the dissemination of bad news on the euro area economy affects negatively the volatility, i.e. the worse the news the higher the volatility.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37200.

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Date of creation: 08 Mar 2012
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Handle: RePEc:pra:mprapa:37200

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Keywords: sovereign bond spreads; economic news;

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