Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/106481
Authors: 
Niehof, Britta
Year of Publication: 
2014
Series/Report no.: 
Joint Discussion Paper Series in Economics [58-2014]
Abstract: 
This paper analyses the main drivers of sovereign bond spreads in a globalised world. Specifically, we account for international spillovers of bond spreads by adding an additional driver, namely, financial markets, and allowing interactions across countries and markets. We contribute to the VAR literature by taking a global VAR approach, which encompasses international linkages and spillovers and also deals with the issue of identification and the large dimensionality. We find significant spillovers across countries and across markets. Moreover, we reveal that bond spreads are driven by stock markets. Furthermore, highly indebted countries react more strongely to foreign shocks than do stable economies. European bond markets are primarily driven by European shocks, whereas U.S. shocks have a higher impact on European countries that are in crisis and other non-European OECD countries. Our results demonstrate that financial market participants, central bankers, and fiscal policymakers need to be aware of global interdependencies, as bond spread volatility is driven by different factors for each country.
Subjects: 
New Keynesian Model
Philipps Curve
Taylor Rule
Stochastic Differential Equations
JEL: 
C02
C63
E44
E47
E52
F41
Document Type: 
Working Paper

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