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Volatility in EMU sovereign bond yields: permanent and transitory components


Sosvilla Rivero, Simón Javier y Morales-Zumaquero, Amalia (2011) Volatility in EMU sovereign bond yields: permanent and transitory components. [ Working Paper; nº 06, 2011, ]

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This paper explores the evolving relationship in the volatility of sovereign yields in the European Economic and Monetary Union (EMU). To that end, we examine the behaviour for daily yields for 11 EMU countries (EMU-11), during the 2001-2010 period. In a first step, we decompose volatility in permanent and transitory components using Engel and Lee (1999)´s component-GARCH model. Results suggest that transitory shifts in debt market sentiment tend to be less important determinants of bond-yield volatility than shocks to the underlying fundamentals. In a second step, we develop a correlation and causality analysis that indicates the existence of two different groups of countries closed linked: core EMU countries and peripheral EMU countries. Finally, in a third step, we make a cluster analysis that further supports our results regarding the existence of two different groups of countries, with different positions regarding the stability of public finance.

Tipo de documento:Documento de trabajo o Informe técnico
Palabras clave:Conditional variance; Component model; Cluster analysis; Sovereign bond yields; Economic and Monetary Union
Materias:Ciencias Sociales > Economía > Econometría
Ciencias Sociales > Economía > Mercados bursátiles y financieros
Ciencias Sociales > Economía > Integración económica
Ciencias Sociales > Economía > Economía regional
Título de serie o colección:Working Paper
Código ID:12896

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