Preliminary communication
https://doi.org/10.32676/n.10.7
Sovereign Bond Market Shocks and Their Impact on Economic Activity: A Panel VAR Approach
Petra Palić
; Catholic University of Croatia, Department of Sociology
Abstract
This paper analyzes the transmission of shocks from government bond markets to key macroeconomic
variables, including real GDP, exchange rate, inflation, and government debt. The analysis takes into
account significant shocks, such as those during the global financial crisis of 2008 and the sovereign
debt crisis that affected certain EU member states, which had a profound impact on the government
bond market and the economic stability of these countries.The study covers the period from 2005
to 2016, using quarterly data for twenty-seven European Union member states, including the United
Kingdom, which was a full EU member during the observed period. By employing the panel VAR (Vector
Autoregressive) model, the interconnections were explored, enabling a detailed analysis of the dynamic
relationships between government bond markets and macroeconomic variables: real GDP (gdp), nominal
effective exchange rate (neer), consumer price index (p), and government debt (gdebt).The results
indicate that changes in bond spreads, which reflect changes in risk, influence economic activity. The
findings of this research highlight the importance of understanding these dynamic relationships for the design of effective policies that can mitigate the negative effects of financial shocks on the real economy,
particularly during crisis periods when government bond markets are subject to significant fluctuations.
Keywords
government bond market, real economy, panel VAR model, crisis
Hrčak ID:
324396
URI
Publication date:
19.12.2024.
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