Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

For reason of empirical tractability, analysis of cointegrated economic time series is often developed in a partial setting, in which a subset of variables is explicitly modeled conditional on the rest. This approach yields valid inference only if the conditioning variables are weakly exogenous for the parameters of interest. This paper proposes a new test of weak exogeneity in panel cointegration models. The test has a limiting Gumbel distribution that is obtained by first letting the time dimension of the panel go to infinity and then letting its cross-sectional dimension go to infinity. The paper evaluates the accuracy of the asymptotic approximation in finite samples via simulation experiments. Finally, as an empirical illustration, the paper reports tests of weak exogeneity of disposable income and wealth in an aggregate consumption equation.

Cointegration --- Econometrics --- Economic Theory & Research --- Education --- Macroeconomics and Economic Growth --- Mote Carlo Methods --- Panel Data --- Science and Technology Development --- Science Education --- Scientific Research & Science Parks --- Statistical & Mathematical Sciences --- Weak Exogeneity

Choose an application

• Reference Manager
• EndNote
• RefWorks (Direct export to RefWorks)

Asset allocation decisions of international investors are at the core of capital flows. This paper explores the impact of these decisions on long-term government bond yields, using a quarterly investor base dataset for 22 advanced economies over 2004-2012. We find that a one percentage point increase in the share of government debt held by foreign investors can explain a 6-10 basis point reduction in long-term sovereign bond yields over the sample period. Accordingly, international flows to core advanced economy bond markets over 2008-12 are estimated to have reduced 10-year government bond yields by 40-65 basis points in Germany, 20-30 basis points in the U.K., and 35-60 basis points in the U.S. In contrast, foreign outflows are estimated to have raised 10-year government bond yields by 40-70 basis points in Italy and 110-180 basis points in Spain during the same period. Our results suggest that the divergence in long-term bond yields between core and periphery economies in the euro area may continue unless the “normalization” of macroeconomic determinants of bond yields is accompanied by a similar “normalization” of the foreign investor base.

Cointegration. --- Government securities --- Rate of return --- Econometrics --- Investment return --- Investment yield --- Return on equity --- Return on investment --- ROI (Rate of return) --- Capital investments --- Profit --- Ratio analysis --- Risk-return relationships --- Government agency securities --- Government bonds --- Public securities --- Treasuries (Securities) --- Treasury bonds --- Bonds --- Debts, Public --- Securities --- Econometric models. --- Banks and Banking --- Exports and Imports --- Investments: Bonds --- Public Finance --- General Financial Markets: General (includes Measurement and Data) --- Interest Rates: Determination, Term Structure, and Effects --- Debt --- Debt Management --- Sovereign Debt --- International Lending and Debt Problems --- Investment & securities --- Finance --- Public finance & taxation --- International economics --- Bond yields --- Yield curve --- Sovereign bonds --- Public debt --- External debt --- Financial institutions --- Financial services --- Interest rates --- Debts, External --- United States