In this paper the determinants of the long tern yield spread between Italy and Germany government bonds are studied using daily observations for a period 1 January 1995-28 October 1997. Cointegration analysis is used to test if the interest rate parity condition holds in the period considered and also the dynamic adjustment of total spread and its components is studied using impulse response functions. The main conclusion is that the reduction of the total spread was due both to credibility gains and to favourable dynamics in the German interest rate.
Interest rate spreads between Italy and Germany / M., D'Amato; Pistoresi, Barbara. - In: APPLIED FINANCIAL ECONOMICS. - ISSN 0960-3107. - STAMPA. - 11:(2001), pp. 603-612.
Interest rate spreads between Italy and Germany
PISTORESI, Barbara
2001
Abstract
In this paper the determinants of the long tern yield spread between Italy and Germany government bonds are studied using daily observations for a period 1 January 1995-28 October 1997. Cointegration analysis is used to test if the interest rate parity condition holds in the period considered and also the dynamic adjustment of total spread and its components is studied using impulse response functions. The main conclusion is that the reduction of the total spread was due both to credibility gains and to favourable dynamics in the German interest rate.
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