Global Bonding: Do U.S. Bond and Equity Spillovers Dominate Global Financial Markets?

Author/Editor:

Tamim Bayoumi ; Trung T Bui

Publication Date:

December 20, 2012

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper uses a novel variant of identification through hetroscedacity to estimate spillovers across U.S., Euro area, Japanese, and UK government bond and equity markets in a vector autoregression. The results suggest that U.S. financial shocks reverberate around the world much more strongly than shocks from other regions, including the Euro area, while inward spillovers to the U.S. from elsewhere are minimal. There is also evidence of two-way spillovers between the UK and Euro area financial markets and spillovers from Europe to Japan. The results also suggest that the uncertainty about the direction of causality of contemporaneous correlations—an issue that other techniques cannot tackle—is the dominant source of uncertainty in the estimated impulse response functions.

Series:

Working Paper No. 2012/298

Subject:

English

Publication Date:

December 20, 2012

ISBN/ISSN:

9781475586633/1018-5941

Stock No:

WPIEA2012298

Pages:

26

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