European sovereign debt crisis and linkage of long-term government bond yields

Based on the robust cross-correlation function approach developed by Hong (2001), this paper investigates the causality-in-mean and the causality-in-variance of long-term bond yields in seven countries including “PIIGS” (Portugal, Ireland, Italy, Greece, and Spain), Germany, and France. A main contribution of the study is to assess the impacts of the recent European sovereign debt crisis on relationships of the bond yields. We find some evidence of the mean spillover effects, especially from Portugal and France before the crisis and from Portugal and Italy after the crisis. In contrast, the variance spillover effects from Germany interestingly strengthened through the debt crisis in particular despite the apparent lack of its mean transmission effects, whilst major sources of volatility spillover effects had been Portugal and France prior to the crisis.