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Bond market and macroeconomic stability in East Asia: a nonlinear causality analysis

Author

Listed:
  • Jamel Boukhatem

    (Umm al-Qura University
    University of Tunis el Manar)

  • Zied Ftiti

    (EDC Paris Business School, OCRE-Lab)

  • Jean Michel Sahut

    (IDRAC Business School)

Abstract

This study investigates whether dynamic bond markets lead to more macroeconomic stability in eight East Asian countries by distinguishing between advanced and emerging economies. Contrary to previous studies, we relax the strong assumption of homogenous investors by adopting a frequency approach based on the wavelet methodology to measure the relationship between the bond market and macroeconomic stability through both the time and frequency dimensions. Our analysis reveals three main findings. First, the interaction between the bond market and macroeconomic variables is more pronounced in emerging economies than in developed economies. Second, the relationship between the bond market and macroeconomic indicators varies over time, as it is more pronounced during turmoil periods, and across frequencies, as we show that the relationship is observed in the short and medium (long) term for emerging (advanced) East Asian economies. Third, there is divergence in the relationship regarding the level and volatility of the macroeconomic indicators. Indeed, for emerging economies, the relationship is more pronounced in the first moments; however, for advanced economies, it is more pronounced in the second moments.

Suggested Citation

  • Jamel Boukhatem & Zied Ftiti & Jean Michel Sahut, 2021. "Bond market and macroeconomic stability in East Asia: a nonlinear causality analysis," Annals of Operations Research, Springer, vol. 297(1), pages 53-76, February.
    • Handle: RePEc:spr:annopr:v:297:y:2021:i:1:d:10.1007_s10479-020-03519-6
    DOI: 10.1007/s10479-020-03519-6
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    More about this item

    Keywords

    Emerging countries; Advanced economies; Macroeconomic stability; Nonlinear Granger causality; Wavelet coherence approach;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes

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