Panoeconomicus 2014 Volume 61, Issue 3, Pages: 331-348
https://doi.org/10.2298/PAN1403331S
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How are interbank and sovereign debt markets linked? Evidence from 14 OECD countries, the Euro area and Russia
Stolbov Mikhail (Moscow State Institute of International Relations, Department of Applied Economics, Moscow, Russia)
The paper explores causal linkages between interbank and sovereign bond
markets in 14 OECD countries, the Euro area and Russia during the 2008-2009
crisis and post-crisis period. The analysis has been carried out for
individual countries and in a multivariate framework. It enables to identify
systemically important countries in both markets. The USA, Switzerland,
Australia, South Korea and Russia are of particular significance in the
interbank lending market. Switzerland, the UK, Poland, Australia and Canada
play a pivotal role in the public debt market. The analysis under the
multivariate framework reveals substantial heterogeneity in the network
structure of both markets. Only 12% of causal relationships coincide, which
may fuel financial contagion. Volatility spillovers underlie the causal
linkages. They are estimated by means of dynamic volatility indices based on
rolling correlation matrices and help identify the transformation of the
international banking turmoil into the sovereign debt crisis.
Keywords: interbank lending markets, public debt, granger causality, Diks-Panchenko test, Rolling correlations