Hossein Asgharian (), Lu Liu () and Marcus Larsson ()
Hossein Asgharian: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Lu Liu: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Marcus Larsson: Handelsbanken, Stockholm
Abstract: We analyze the importance of different types of asset holdings for the interdependence of the yield curves in the EMU using a spatial VAR model. We find that the cross-border holdings of long-term debt and bank lending are important for the interdependence. Our analysis of cross-sectional dispersion in sovereign-CDS-premium term structure shows that the differential in sovereign creditworthiness in the EMU is a main driver of the yield-curve divergence after 2008. The degree to which EMU countries’ yield-curve slopes depend on the US slope decreases in the recent US recession, reflecting expectations during this period about future divergence of the US and EMU economies.
50 pages, October 6, 2015
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