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Volatility in EMU sovereign bond yields: permanent and transitory components

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

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Official URL: http://eprints.ucm.es/12896/


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Abstract

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.


Item Type:Working Paper or Technical Report
Uncontrolled Keywords:Conditional variance; Component model; Cluster analysis; Sovereign bond yields; Economic and Monetary Union
Subjects:Social sciences > Economics > Econometrics
Social sciences > Economics > Stock exchanges
Social sciences > Economics > Economic integration
Social sciences > Economics > Regional economics
Series Name:Working Paper
Volume:2011
Number:06
ID Code:12896
Deposited On:05 Jul 2011 09:59
Last Modified:20 Feb 2017 14:13

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