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Determinants of the Government Bond Yield: Evidence from a Highly Euroised Small Open Economy

Author

Listed:
  • Maja Mihelja ?aja

    (Faculty of Economics and Business Zagreb)

  • Drago Jakov?evi?

    (Faculty of Economics and Business Zagreb)

  • Lucija Vi?i?

    (Faculty of Economics and Business Zagreb)

Abstract

This paper analyses the relationship between bond market, macroeconomic fundamentals and a set of additional covariates in the Republic of Croatia, a small open economy with a very high and persistent level of euroization. The sample ranges from the year 2001 to 2017. Ordinary least squares regression is applied on the quarterly dataset to examine the major drivers of nominal yields of government bonds, whereas Multiple Breakpoint Tests are used to determine structural breaks in the variables. The results corroborate theoretical knowledge and suggest a significant effect of fiscal and financial determinants on bond yields. Variables presenting macroeconomic fundamentals explain a substantial part of Croatian trends. Therefore, policymakers seeking to improve macroeconomic conditions should learn from multi-causal studies involving these variables before setting their policies.

Suggested Citation

  • Maja Mihelja ?aja & Drago Jakov?evi? & Lucija Vi?i?, 2018. "Determinants of the Government Bond Yield: Evidence from a Highly Euroised Small Open Economy," International Journal of Economic Sciences, International Institute of Social and Economic Sciences, vol. 7(2), pages 87-106, November.
    • Handle: RePEc:sek:jijoes:v:7:y:2018:i:2:p:87-106
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    More about this item

    Keywords

    government bonds; macroeconomic fundamentals; structural changes; linear regression; The Republic of Croatia;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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