IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Granger-causality in peripheral EMU public debt markets: A dynamic approach

  • Gómez-Puig, Marta
  • Sosvilla-Rivero, Simón

Our research aims to analyze the possible existence of Granger-causal relationships in the behavior of public debt issued by peripheral member countries of the European Economic and Monetary Union (EMU), with special emphasis on the recent episodes of crisis triggered in the eurozone sovereign debt markets since 2009. With this goal in mind, we make use of a database of daily frequency of yields on 10-year government bonds issued by five EMU countries (Greece, Ireland, Italy, Portugal and Spain), covering the entire history of the EMU from its inception on 1 January 1999 until 31 December 2010. In the first step, we explore the pair-wise Granger-causal relationship between yields, both for the whole sample and for changing subsamples of the data, in order to capture the possible time-varying causal relationship. This approach allows us to detect episodes of significant increase in Granger-causality between yields on bonds issued by different countries. In the second step, we study the determinants of these episodes, analyzing the role played by different factors, paying special attention to instruments that capture the total national debt (domestic and foreign) in each country.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sciencedirect.com/science/article/pii/S0378426613002203
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal Journal of Banking & Finance.

Volume (Year): 37 (2013)
Issue (Month): 11 ()
Pages: 4627-4649

as
in new window

Handle: RePEc:eee:jbfina:v:37:y:2013:i:11:p:4627-4649
Contact details of provider: Web page: http://www.elsevier.com/locate/jbf

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Nielsen, Bent & Rahbek, Anders, 2000. " Similarity Issues in Cointegration Analysis," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(1), pages 5-22, February.
  2. Gómez-Puig, Marta, 2008. "Monetary integration and the cost of borrowing," Journal of International Money and Finance, Elsevier, vol. 27(3), pages 455-479, April.
  3. Economides, Nicholas & Siow, Aloysius, 1988. "The Division of Markets is Limited by the Extent of Liquidity (Spatial Competition with Externalities)," American Economic Review, American Economic Association, vol. 78(1), pages 108-21, March.
  4. Kwiatkowski, D. & Phillips, P.C.B. & Schmidt, P., 1990. "Testing the Null Hypothesis of Stationarity Against the Alternative of Unit Root : How Sure are we that Economic Time Series have a Unit Root?," Papers 8905, Michigan State - Econometrics and Economic Theory.
  5. Favero, Carlo A. & Missale, Alessandro, 2011. "Sovereign spreads in the Euro area: Which prospects for a Eurobond?," CEPR Discussion Papers 8637, C.E.P.R. Discussion Papers.
  6. Peter C.B. Phillips & Joon Y. Park, 1999. "Nonstationary Binary Choice," Cowles Foundation Discussion Papers 1223, Cowles Foundation for Research in Economics, Yale University.
  7. Lorenzo Codogno & Carlo Favero & Alessandro Missale, 2003. "Yield spreads on EMU government bonds," Economic Policy, CEPR;CES;MSH, vol. 18(37), pages 503-532, October.
  8. Hendry, David F., 1995. "Dynamic Econometrics," OUP Catalogue, Oxford University Press, number 9780198283164, March.
  9. Kerstin Bernoth & Burcu Erdogan, 2010. "Sovereign Bond Yield Spreads: A Time-Varying Coefficient Approach," Discussion Papers of DIW Berlin 1078, DIW Berlin, German Institute for Economic Research.
  10. Fernando Broner & Jaume Ventura, 2005. "Globalization and risk sharing," Economics Working Papers 837, Department of Economics and Business, Universitat Pompeu Fabra, revised Apr 2009.
  11. Schoenmaker, Dirk, 2011. "The financial trilemma," Economics Letters, Elsevier, vol. 111(1), pages 57-59, April.
  12. Dornbusch, Rudiger & Park, Yung Chul & Claessens, Stijn, 2000. "Contagion: Understanding How It Spreads," World Bank Research Observer, World Bank Group, vol. 15(2), pages 177-97, August.
  13. repec:cup:cbooks:9780521002882 is not listed on IDEAS
  14. Jakob von Weizsäcker & Jacques Delpla, 2011. "Eurobonds: The blue bond concept and its implications," Policy Contributions 509, Bruegel.
  15. Jean Pisani-Ferry & André Sapir & Nicolas Véron & Guntram B. Wolff, 2012. "What kind of European banking union?," Policy Contributions 731, Bruegel.
  16. Serena Ng & Pierre Perron, 1997. "Lag Length Selection and the Construction of Unit Root Tests with Good Size and Power," Boston College Working Papers in Economics 369, Boston College Department of Economics, revised 01 Sep 2000.
  17. Nicholas Bloom, 2007. "The Impact of Uncertainty Shocks," NBER Working Papers 13385, National Bureau of Economic Research, Inc.
  18. Ashoka Mody, 2009. "From Bear Stearns to Anglo Irish; How Eurozone Sovereign Spreads Related to Financial Sector Vulnerability," IMF Working Papers 09/108, International Monetary Fund.
  19. Kristin Forbes & Roberto Rigobon, 1999. "No Contagion, Only Interdependence: Measuring Stock Market Co-movements," NBER Working Papers 7267, National Bureau of Economic Research, Inc.
  20. Elliott, Graham & Rothenberg, Thomas J & Stock, James H, 1996. "Efficient Tests for an Autoregressive Unit Root," Econometrica, Econometric Society, vol. 64(4), pages 813-36, July.
  21. Bayoumi, Tamim & Goldstein, Morris & Woglom, Geoffrey, 1995. "Do Credit Markets Discipline Sovereign Borrowers? Evidence from US States," CEPR Discussion Papers 1088, C.E.P.R. Discussion Papers.
  22. Gerlach, Stefan & Schulz, Alexander & Wolff, Guntram B., 2010. "Banking and Sovereign Risk in the Euro Area," CEPR Discussion Papers 7833, C.E.P.R. Discussion Papers.
  23. Jean Pisani-Ferry, 2012. "The Euro crisis and the new impossible trinity," Policy Contributions 674, Bruegel.
  24. Ashoka Mody & Stijn Claessens & Shahin Vallée, 2012. "Paths to Eurobonds," IMF Working Papers 12/172, International Monetary Fund.
  25. Edda Zoli & Silvia Sgherri, 2009. "Euro Area Sovereign Risk During the Crisis," IMF Working Papers 09/222, International Monetary Fund.
  26. Lane, Philip R., 2011. "The Irish Crisis," CEPR Discussion Papers 8287, C.E.P.R. Discussion Papers.
  27. Kalemli-Ozcan, Sebnem & Papaioannou, Elias & Peydró, José-Luis, 2010. "What lies beneath the euro's effect on financial integration? Currency risk, legal harmonization, or trade?," Journal of International Economics, Elsevier, vol. 81(1), pages 75-88, May.
  28. Mark M. Spiegel, 2009. "Monetary and financial integration: Evidence from the EMU," NBER Chapters, in: Financial Globalization, 20th Anniversary Conference, NBER-TCER-CEPR National Bureau of Economic Research, Inc.
  29. Sims, Christopher A, 1972. "Money, Income, and Causality," American Economic Review, American Economic Association, vol. 62(4), pages 540-52, September.
  30. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-80, November.
  31. MacKinnon, James G, 1996. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 11(6), pages 601-18, Nov.-Dec..
  32. C. Fred Bergsten & Jacob Funk Kirkegaard, 2012. "The Coming Resolution of the European Crisis: An Update," Policy Briefs PB12-18, Peterson Institute for International Economics.
  33. Salvador Barrios & Per Iversen & Magdalena Lewandowska & Ralph Setzer, 2009. "Determinants of intra-euro area government bond spreads during the financial crisis," European Economy - Economic Papers 388, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
  34. Hsiao, Cheng, 1981. "Autoregressive modelling and money-income causality detection," Journal of Monetary Economics, Elsevier, vol. 7(1), pages 85-106.
  35. Abad, Pilar & Chuliá, Helena & Gómez-Puig, Marta, 2009. "EMU and European government bond market integration," Working Paper Series 1079, European Central Bank.
  36. Goodhart, Charles A.E. & Huang, Haizhou, 2005. "The lender of last resort," Journal of Banking & Finance, Elsevier, vol. 29(5), pages 1059-1082, May.
  37. Thornton, Daniel L & Batten, Dallas S, 1985. "Lag-Length Selection and Tests of Granger Causality between Money and Income," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 17(2), pages 164-78, May.
  38. repec:dgr:uvatin:2011019 is not listed on IDEAS
  39. Korajczyk, Robert A. & Sadka, Ronnie, 2008. "Pricing the commonality across alternative measures of liquidity," Journal of Financial Economics, Elsevier, vol. 87(1), pages 45-72, January.
  40. Patrick Bolton & Olivier Jeanne, 2011. "Sovereign Default Risk and Bank Fragility in Financially Integrated Economies," NBER Working Papers 16899, National Bureau of Economic Research, Inc.
  41. Geert Bekaert & Michael Ehrmann & Marcel Fratzscher & Arnaud J. Mehl, 2011. "Global Crises and Equity Market Contagion," NBER Working Papers 17121, National Bureau of Economic Research, Inc.
  42. Johansen, Soren, 1995. "Likelihood-Based Inference in Cointegrated Vector Autoregressive Models," OUP Catalogue, Oxford University Press, number 9780198774501, March.
  43. Dale F. Gray, 2009. "Modeling Financial Crises and Sovereign Risks," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 117-144, November.
  44. Mark M. Spiegel, 2009. "Monetary and Financial Integration in the EMU: Push or Pull?," Review of International Economics, Wiley Blackwell, vol. 17(4), pages 751-776, 09.
  45. repec:cup:cbooks:9780521452175 is not listed on IDEAS
  46. Jakob von Weizsäcker & Jacques Delpla, 2010. "The Blue Bond Proposal," Policy Briefs 403, Bruegel.
  47. Carrion-i-Silvestre, Josep Lluis & Sanso-i-Rossello, Andreu & Ortuno, Manuel Artis, 2001. "Unit root and stationarity tests' wedding," Economics Letters, Elsevier, vol. 70(1), pages 1-8, January.
  48. Granger, C W J, 1969. "Investigating Causal Relations by Econometric Models and Cross-Spectral Methods," Econometrica, Econometric Society, vol. 37(3), pages 424-38, July.
  49. James G. MacKinnon & Alfred A. Haug & Leo Michelis, 1996. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Working Papers 1996_07, York University, Department of Economics.
  50. Sebastian Barnes & Philip R. Lane & Artur Radziwill, 2010. "Minimising Risks from Imbalances in European Banking," OECD Economics Department Working Papers 828, OECD Publishing.
  51. Bayoumi, Tamim & Goldstein, Morris & Woglom, Geoffrey, 1995. "Do Credit Markets Discipline Sovereign Borrowers? Evidence from the U.S. States," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1046-59, November.
  52. repec:dgr:uvatin:20110019 is not listed on IDEAS
  53. Gomez-Puig, Marta, 2006. "Size matters for liquidity: Evidence from EMU sovereign yield spreads," Economics Letters, Elsevier, vol. 90(2), pages 156-162, February.
  54. Schoenmaker, Dirk & Gros, Daniel, 2012. "A European Deposit Insurance and Resolution Fund," CEPS Papers 6918, Centre for European Policy Studies.
  55. Gros, Daniel, 2011. "External versus Domestic Debt in the Euro Crisis," CEPS Papers 5677, Centre for European Policy Studies.
  56. Dolado, Juan J & Jenkinson, Tim & Sosvilla-Rivero, Simon, 1990. " Cointegration and Unit Roots," Journal of Economic Surveys, Wiley Blackwell, vol. 4(3), pages 249-73.
  57. Sergio Andenmatten & Felix Brill, 2011. "Measuring Co-Movements of CDS Premia during the Greek Debt Crisis," Diskussionsschriften dp1104, Universitaet Bern, Departement Volkswirtschaft.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:37:y:2013:i:11:p:4627-4649. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.