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The stability of government bond markets’ equilibrium and the interdependence of lending rates

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Listed:
  • Paulo M. M. Rodrigues

    (Banco de Portugal
    Nova School of Business and Economics)

  • Philipp Sibbertsen

    (Leibniz University Hannover)

  • Michelle Voges

    (Leibniz University Hannover)

Abstract

In this paper, we introduce test procedures for no fractional cointegration against possible breaks to a fractional cointegrating relationship in a segment of the data. We base the proposed tests on the supremum of the Hassler and Breitung (Econom Theor 22(6):1091–1111, 2006) test statistic for no cointegration over possible breakpoints in the long-run equilibrium. We show that the new tests correctly standardized converge to the supremum of a Chi-squared distribution and that this convergence is uniform. An in-depth Monte Carlo analysis provides results on the finite sample performance of our tests. We then use the new procedures to investigate whether there was a dissolution of fractional cointegrating relationships between the yields of government bonds of eleven EMU countries (Spain, Italy, Portugal, Ireland, Greece, Belgium, Austria, Finland, the Netherlands, Germany and France) as a consequence of the European debt crisis and to understand the degree of interdependence of lending rates to non-financial corporations across these eleven countries.

Suggested Citation

  • Paulo M. M. Rodrigues & Philipp Sibbertsen & Michelle Voges, 2024. "The stability of government bond markets’ equilibrium and the interdependence of lending rates," Empirical Economics, Springer, vol. 67(6), pages 2503-2538, December.
    • Handle: RePEc:spr:empeco:v:67:y:2024:i:6:d:10.1007_s00181-024-02623-x
    DOI: 10.1007/s00181-024-02623-x
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    More about this item

    Keywords

    Fractional cointegration; Persistence breaks; Hassler–Breitung test; Changing long-run equilibrium;
    All these keywords.

    JEL classification:

    • C12 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Hypothesis Testing: General
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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