Naslov
The determinants of country risk premium volatility: evidence from a panel VAR model

Autori
Palić, Petra ; Posedel Šimović, Petra ; Vizek, Maruška

Vrsta, podvrsta i kategorija rada
Sažeci sa skupova, neobjavljeni rad, znanstveni

Skup
IT&FA's 27th International Conference: "Leading Issues in International Trade and Finance"

Mjesto i datum
Poznań, Poljska, 31.05.2017. - 03.06.2017

Vrsta sudjelovanja
Predavanje

Vrsta recenzije
Nije recenziran

Ključne riječi
sovereign bond markets ; panel VAR ; European Union

Sažetak
We use data for 24 European countries, spanning from 1994 to 2015, in order to examine how changes in macroeconomic conditions influence country risk premium volatility proxied by sovereign spreads variance. In the first part of the empirical analysis, we estimate the univariate generalized autoregressive conditional heteroskedasticity (GARCH) model in order to obtain the conditional variance of sovereign bond spreads. We show that an increase in this variance coincides with economic and financial crisis occurring either in the country or globally. In the second part of the empirical analysis, we estimate the panel vector autoregression (panel VAR) model in order to model the interplay between macroeconomic fundamentals (inflation, output gap, public debt and interest rates) and the country’s risk premium volatility. We show that overheating of the economy, along with an unexpected increase in public debt, inflation and interest rates, increase the country’s risk premium volatility. We also show that a sudden increase in the country´s risk premium volatility depresses the economy, exerts deflationary pressures on consumer prices, and is followed by a strong and permanent increase in public debt.

Izvorni jezik
Engleski

Znanstvena područja
Ekonomija

POVEZANOST RADA