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Money factors and EMU government bond markets' convergence

Money factors and EMU government bond markets' convergence Purpose – The authors aim to investigate the cointegrating relationship of the government bond yields, driven by the common money factors in European Monetary Union (EMU). Design/methodology/approach – By adopting a dynamic ARDL transformation, the paper provides short‐/long‐term estimates of bond yields convergence before the burst of the current debt crisis. It also investigates how the degree of convergence between bond yields, driven by money factors, is affected in short/long runs. Findings – The findings indicate that the introduction of the common currency has not a uniform effect on the bond yields, and there is a nominal convergence between EMU bond yields based on money market determinants. Originality/value – The current financial crisis indicates that the EMU bond market convergence was temporary and it can be highly affected by an exogenous shocks and the sentiment of international investors. The findings imply the necessity for a common monetary and fiscal policy in Euro zone countries. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Studies in Economics and Finance Emerald Publishing

Money factors and EMU government bond markets' convergence

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Publisher
Emerald Publishing
Copyright
Copyright © 2014 Emerald Group Publishing Limited. All rights reserved.
ISSN
1086-7376
DOI
10.1108/SEF-11-2012-0133
Publisher site
See Article on Publisher Site

Abstract

Purpose – The authors aim to investigate the cointegrating relationship of the government bond yields, driven by the common money factors in European Monetary Union (EMU). Design/methodology/approach – By adopting a dynamic ARDL transformation, the paper provides short‐/long‐term estimates of bond yields convergence before the burst of the current debt crisis. It also investigates how the degree of convergence between bond yields, driven by money factors, is affected in short/long runs. Findings – The findings indicate that the introduction of the common currency has not a uniform effect on the bond yields, and there is a nominal convergence between EMU bond yields based on money market determinants. Originality/value – The current financial crisis indicates that the EMU bond market convergence was temporary and it can be highly affected by an exogenous shocks and the sentiment of international investors. The findings imply the necessity for a common monetary and fiscal policy in Euro zone countries.

Journal

Studies in Economics and FinanceEmerald Publishing

Published: May 27, 2014

Keywords: Convergence; ARDL model; Euribor interest rates; Euro exchange rate; Government bond yields; European monetary union

References

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