Long-Run and Short-Run Determinants of Sovereign Bond Yields in Advanced Economies
By Tigran Poghosyan. Social Science Research Network, 2012
188 citations recorded by the source corpus.
We analyze determinants of sovereign bond yields in 22 advanced economies over the 1980–2010 period using panel cointegration techniques. The application of the cointegration methodology allows distinguishing between long-run (debt-to-GDP ratio, potential growth) and short-run (inflation, short-term interest rates, etc.) determinants of sovereign borrowing costs. We find that in the long run, government bond yields increase by about 2 basis points in response to a 1 percentage point increase in government debt-to-GDP ratio and by about 45 basis points in response to a 1 percentage point increase in the potential growth rate. In the short run, sovereign bond yields deviate from the level determined by the long-run fundamentals, but about half of the deviation adjusts in one year. When considering the impact of the global financial crisis on sovereign borrowing costs in euro area countries, the estimations suggest that spreads against Germany in some European periphery countries exceeded the level determined by fundamentals in the aftermath of the crisis, while some North European countries have benefited from “safe-haven” flows.
Subfields: Finance
View Paper: https://www.semanticscholar.org/paper/953c07fd9316c809175773288b1d2eaf8349cc86
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Citations in the corpus
- Measuring Bilateral Spillover and Testing Contagion on Sovereign Bond Markets in Europe (2014, background): “This suggests that, non-eurozone countries have been able to contain mispricing on their sovereign risk (De Grauwe and Ji, 2012, Poghosyan, 2012).”
- Sovereign bond yield spreads and sustainability: An empirical analysis of OECD countries (2019, background): “Determinants of sovereign bond yields and spreads have been extensively investigated (Attinasi et al., 2009; Barbosa and Costa, 2010; Afonso et al., 2012; Poghosyan, 2012; D’Agostino and Ehrmann, 2013).”