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Correlation between Maltese and euro area sovereign bond yields

Listed author(s):
  • Ellul, Reuben

This paper investigates correlation in Malta government stock (MGS) yields and assesses correlation between these yields and those of Malta’s major euro area partners. Correlation coefficients are found to be high, indicating the existence of a long-run relationship in the setting of MGS yields with short-term deviations. The analysis also includes an MGARCH-DCC(1,1) system based on spreads over the German ten-year bond, which are modelled for eleven euro area countries. Dynamic conditional correlations (DCCs) confirm that Maltese ten-year bond yields tend to be broadly insulated from event specific volatility in other countries’ yields. Simple ‘benchmark’ regressions are estimated over the period 2007 – 2016, allowing the comparison of actual ten-year bond yields with composite equation outputs. The benchmarked yields based on euro area bonds track consistently actual MGS yields, while from mid-2015 onwards, MGS yields follow closely a benchmark derived on the basis of underlying economic fundamentals.

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File URL: https://mpra.ub.uni-muenchen.de/80795/1/MPRA_paper_80795.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 80795.

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Date of creation: Jun 2017
Handle: RePEc:pra:mprapa:80795
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  1. Ellul, Reuben, 2015. "Analysing correlation between the MSE index and global stock markets," MPRA Paper 72464, University Library of Munich, Germany.
  2. Karen Caruana & Christopher Pace, 2013. "Household finance and consumption survey in Malta: main results of 2010 exercise," CBM Working Papers WP/02/2013, Central Bank of Malta.
  3. Riccardo Faini, 2006. "Fiscal policy and interest rates in Europe," Economic Policy, CEPR;CES;MSH, vol. 21(47), pages 443-489, 07.
  4. Aaron George GRECH, 2014. "The Demand For Currency In Malta," Theoretical and Practical Research in Economic Fields, ASERS Publishing, vol. 0(1), pages 49-55, June.
  5. Simone Manganelli & Guido Wolswijk, 2009. "What drives spreads in the euro area government bond market?," Economic Policy, CEPR;CES;MSH, vol. 24, pages 191-240, 04.
  6. Eric T. Swanson, 2008. "Convergence of long-term bond yields in the euro area," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue nov21.
  7. Aaron George GRECH, 2014. "The Demand For Currency In Malta," Journal of Applied Economic Sciences Quarterly, ASERS Publishing, vol. 0(1), pages 49-55, August.
  8. Engle, Robert F, 2000. "Dynamic Conditional Correlation - A Simple Class of Multivariate GARCH Models," University of California at San Diego, Economics Working Paper Series qt56j4143f, Department of Economics, UC San Diego.
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