Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/154412
Authors: 
De Santis, Roberto
Stein, Michael
Year of Publication: 
2016
Series/Report no.: 
ECB Working Paper 1979
Abstract: 
We study correlations between the risk-free rate and sovereign yields of ten euro area countries using smooth transition conditional correlation GARCH (STCC-GARCH) specifications, controlling for credit risk in mean and variance equations and conditioning non-linearly to liquidity risk. Correlations are state-dependent and heterogeneous across jurisdictions. Using panel vector autoregression models, we identify the macro factors influencing the correlations: interbank credit risk, the Greek crisis, and break-up risk. We show that the European Central Bank’s asset purchase programmes helped restore the pass-through relationship. We also make a methodological contribution by estimating all STCC-GARCH parameters at once and introducing an STCC-GARCHX.
Subjects: 
euro area
government bonds
monetary policy
smooth transition models
JEL: 
G12
G15
Document Type: 
Working Paper

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