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Sovereign bond markets and financial stability in an emerging economy: an application of directed acyclic graphs and SVAR models

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Abstract

During the last two decades, domestic government bond markets have developed significantly in emerging economies. Although the financial sector has benefited accordingly, volatility in this market also has posed potential risks in terms of financial stability. This paper uses directed acyclic graphs and structural vector-autoregressive models to evaluate the impact of different shocks on both the public debt market and financial stability. Results suggest that inflation, the policy interest rate and indicators of risk perception are the variables that most affect the slope of the yield curve. In turn, when the slope increases, there is a positive contemporary effect on bank risk indicators.

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  • Melo-Becerra & Ramos-Forero & Hector Zárate-Solano, 2015. "Sovereign bond markets and financial stability in an emerging economy: an application of directed acyclic graphs and SVAR models," Macroeconomics and Finance in Emerging Market Economies, Taylor & Francis Journals, vol. 8(3), pages 306-319, November.
    • Handle: RePEc:taf:macfem:v:8:y:2015:i:3:p:306-319
    DOI: 10.1080/17520843.2015.1049641
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    Cited by:

    1. Andrea Carolina Vargas-Páez & Carlos David Ardila-Dueñas, 2021. "Efecto del riesgo de tipo de cambio en la rentabilidad de los bonos soberanos en Colombia," Borradores de Economia 1165, Banco de la Republica de Colombia.
    2. Carlos David Ardila-Dueñas & Hernán Rincón-Castro, 2019. "¿Cómo y qué tanto impacta la deuda pública a las tasas de interés de mercado?," Borradores de Economia 1077, Banco de la Republica de Colombia.

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