Dynamic Correlations of Sovereign Bond Yield Spreads in the Euro zone and the Role of Credit Rating Agencies' Downgrades
AbstractThe European debt crisis that followed the global financial crisis, erupting first with Greece, then Ireland, Portugal, Italy and Spain, has threatened the very existence of the Euro zone. In this paper we examine the evolution of dynamic co-movements of sovereign bond yield spreads (BYS) in the Euro zone and the role of credit rating agency downgrades on those co-movements. Estimation results from a multivariate DCC-GARCH model on daily BYS data for nine Euro zone countries over the period 2007-2012 suggest an inverted U-shaped curve of BYS co-movements during the period of the financial and debt crisis. Credit rating downgrades by major rating agencies indicate rather idiosyncratic patterns of government bond yield spreads co-movements within and between the Euro zone periphery and the core.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 43013.
Date of creation: 2012
Date of revision:
Government bond yield spreads; credit rating agencies; dynamic conditional correlations; Euro zone sovereign debt crisis;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-12-10 (All new papers)
- NEP-CBA-2012-12-10 (Central Banking)
- NEP-EEC-2012-12-10 (European Economics)
- NEP-FMK-2012-12-10 (Financial Markets)
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