TY - JOUR

T1 - The stability of government bond markets’ equilibrium and the interdependence of lending rates

AU - Rodrigues, Paulo M.M.

AU - Sibbertsen, Philipp

AU - Voges, Michelle

N1 - Publisher Copyright: © The Author(s) 2024.

PY - 2024/6/12

Y1 - 2024/6/12

N2 - 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.

AB - 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.

KW - C12

KW - C32

KW - Changing long-run equilibrium

KW - Fractional cointegration

KW - Hassler–Breitung test

KW - Persistence breaks

UR - http://www.scopus.com/inward/record.url?scp=85195657815&partnerID=8YFLogxK

U2 - 10.1007/s00181-024-02623-x

DO - 10.1007/s00181-024-02623-x

M3 - Article

AN - SCOPUS:85195657815

VL - 67

SP - 2503

EP - 2538

JO - Empirical economics

JF - Empirical economics

SN - 0377-7332

ER -