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Interaction in euro area sovereign bond markets during the financial crisis

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  • David Cronin

Abstract

Applying a t-DCC-GARCH model to daily spread data, four phases of interaction in euro area sovereign bond markets are identifi ed between January 2008 and June 2013. The initial period (January-October 2008) is followed by a general rise in pairwise correlation values between November 2008 and late 2009/early 2010. Interaction then declines on a piecemeal basis up to early 2012. In autumn 2012, coinciding with the announcement of the Outright Monetary Transactions programme by the European Central Bank, there is evidence of some reengagement of bond markets with one another. Policy then seems to have had an infl uence on euro area sovereign bond market behaviour. While it can act to calm markets, policy may also be unduly infl uencing market dynamics and raising moral hazard issues. Copyright ZBW and Springer-Verlag Berlin Heidelberg 2014

Suggested Citation

  • David Cronin, 2014. "Interaction in euro area sovereign bond markets during the financial crisis," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 49(4), pages 212-220, July.
    • Handle: RePEc:spr:intere:v:49:y:2014:i:4:p:212-220
    DOI: 10.1007/s10272-014-0502-2
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    Cited by:

    1. David Cronin & Peter Dunne & Kieran McQuinn, 2019. "Have Irish Sovereign Bonds Decoupled from the Euro Area Periphery, and Why?," The Economic and Social Review, Economic and Social Studies, vol. 50(3), pages 529-556.
    2. Ahmad, Wasim & Sharma, Sumit Kumar, 2018. "Testing output gap and economic uncertainty as an explicator of stock market returns," Research in International Business and Finance, Elsevier, vol. 45(C), pages 293-306.
    3. David Cronin & Peter Dunne, 2019. "Have Sovereign Bond Market Relationships Changed in the Euro Area? Evidence from Italy," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 54(4), pages 250-258, July.
    4. Cronin, David & Flavin, Thomas J. & Sheenan, Lisa, 2016. "Contagion in Eurozone sovereign bond markets? The good, the bad and the ugly," Economics Letters, Elsevier, vol. 143(C), pages 5-8.
    5. Moloney, Kitty & Killeen, Neill & Gilvarry, Oliver, 2014. "A Fragmentation Indicator for Euro Area Sovereign Bond Markets," Economic Letters 11/EL/14, Central Bank of Ireland.

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