Spillover and risk transmission in the components of the term structure of eurozone yield curve

Document Type

Article

Source of Publication

Applied Economics

Publication Date

1-11-2021

Abstract

The components of term structure of interest rate are an important element of the asset pricing models. This article studies the connectedness of the component of the sovereign yield curve across eleven earliest members of the Eurozone comprising six core countries (Germany, Netherlands, Finland, Austria, Belgium, France) and five peripheral countries (Greece, Ireland, Italy, Portugal and Spain) thus enabling us to analyse the short-, medium- and long-term yield curve dynamics of these eurozone economies. We document three distinct phases of connectedness described by the early eurozone period, global financial crisis and the European sovereign debt crises, and the period afterwards. We find a higher level of connectedness between the countries before the global financial crisis, which decreased to its lowest levels during the European debt crisis and is now rising back to higher levels following the European debt crisis. We find that, in general, the core countries are net transmitter of spillover, whereas, the peripheral countries are net receivers of spillover for the three components of the yield curve.

ISSN

0003-6846

Publisher

Routledge

Disciplines

Business

Keywords

Connectedness analysis, GIIPS, sovereign debt crisis, variance decompositions, yield curve

Scopus ID

85099339813

Indexed in Scopus

yes

Open Access

yes

Open Access Type

Bronze: This publication is openly available on the publisher’s website but without an open license

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