International Linkage of Government Bond Market in the Euro Area and the Driving Forces in the European Sovereign Debt Crisis
Date Issued
2011
Date
2011
Author(s)
Ho, Yin-Ju
Abstract
Abstract
The main objective of this paper is to examine the international linkages of the government bond market in the euro area as well as the driving forces behind the European sovereign debt crisis during the period from 2008 to 2010.
First of all, short- and long-term government bond interest rates in the euro area countries are used to investigate the causal relationships based on the straightforward Granger non-causality procedure developed by Toda and Yamamoto (1995) from 1999, the beginning of the implementation of Monetary Union, to October 2010. Our empirical results suggest that international linkages in short-term rates play a vital role and, where the monetary authority has a specific target, the policy objective will be achieved via a short-term rate. As for the long-term rate, the US has been the dominant player in setting world interest rates as a tool, and the results indicate that it is domestic rather than international risk factors that affect bond yield rates among euro area countries.
Second, credit risk is presented as an adequate explanation of and also the driving force behind disentangling the cross-country dispersion of long-term yield spreads during the European sovereign debt crisis over the period from 2008 to 2010. The empirical evidence shows that euro area bond markets are partially integrated since their differences in credit risk still exist.
Subjects
interest rates
international linkage
government bond market
European sovereign debt crisis
credit risk
Type
thesis
File(s)![Thumbnail Image]()
Loading...
Name
ntu-100-P98323004-1.pdf
Size
23.54 KB
Format
Adobe PDF
Checksum
(MD5):8874268d5d40c55ec2cb2282271c7993