Document Type
Article
Department
Economics
Publication Date
2017
Abstract
The integration of financial markets has been a recurring theme in academic and financial research. The majority of the literature has focused on equity markets. Literature on the integration of international bond markets is not as common, specifically regarding that of European bonds since the beginning of the common currency area in 1999.
This paper estimates a fixed effects pooled model and then proceeds to undertake panel unit root and cointegration tests to determine the degree of co-movement of European sovereign bond yields. The reported estimates suggest that yields move together over time, thus the benefits of diversification in European government bond portfolios may be limited. The results also have important implications for monetary policy. Given that economic shocks (e.g. inflationary shocks) are transmitted quickly from country to country, then it will complicate the task of monetary policy when it comes to pursuing an independent policy with respect to domestic monetary conditions in the presence of asymmetric economic shocks.
Publication Title
Business and Economic Research
Volume
7
Issue
1
First Page
68
Last Page
86
DOI
10.5296/ber.v7i1.10863
Comments
Published version of Trinity College senior thesis by Ian Schaeffer: http://digitalrepository.trincoll.edu/theses/553/
Article provided by Trinity College Digital Repository in accordance with publisher's distribution policies. Published as:
Ian Schaeffer and Miguel D. Ramirez. “Is there a Long-Term Relationship among European Sovereign Bond Yields?” Business and Economic Research 7, no. 1 (2017): 68-86.
https://doi.org/10.5296/ber.v7i1.10863