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Michael Stein
- 17 November 2016
- WORKING PAPER SERIES - No. 1979Details
- Abstract
- We study correlations between the risk-free rate and sovereign yields of ten euro area countries using smooth transition conditional correlation GARCH (STCC-GARCH) specifications, controlling for credit risk in mean and variance equations and conditioning non-linearly to liquidity risk. Correlations are state-dependent and heterogeneous across jurisdictions. Using panel vector autoregression models, we identify the macro factors influencing the correlations: interbank credit risk, the Greek crisis, and break-up risk. We show that the European Central Bank
- JEL Code
- G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G15 : Financial Economics→General Financial Markets→International Financial Markets
- 4 December 2014
- WORKING PAPER SERIES - No. 1746Details
- Abstract
- We use a Smooth Transition Conditional Correlation GARCH (STCC-GARCH) model applied to the euro area monetary policy rates and sovereign yields of Italy, Spain and Germany at 5-year maturity to estimate the threshold level of the signals above which the sovereign bond market moves to a crisis regime. We show that the threshold to a crisis regime for Italy and Spain is reached when (i) their 5-year sovereign yield spreads amount to 80-90 basis points; (ii) their 5-year CDS spreads amount to 120-130 basis points or (iii) the 5-year spread between the Kreditanstalt f
- JEL Code
- G12 : Financial Economics→General Financial Markets→Asset Pricing, Trading Volume, Bond Interest Rates
G15 : Financial Economics→General Financial Markets→International Financial Markets
F36 : International Economics→International Finance→Financial Aspects of Economic Integration