A Spatial Modelling Approach to Cross-Country Co-Movements in Sovereign Bond Markets

Paula Margaretic, Alejandro Bernales, David Moreno

2019-12-12 - We investigate the nature of co-movements between sovereign bond spreads of different countries. The literature identifies two main channels for the propagation of shocks across sovereign markets, that is, based on fundamental (real or financial) links and based on social learning or informational interdependence. By applying results from the spatial econometric literature, we propose a way to test and to quantify the importance of the informational interdependence channel, relative to the other channels of co-movements. Our monthly dataset includes 32 emerging and advanced economies over the period 2001-2018.