Analysis of the Evolution of Sovereign Bond Yields by Wavelet Techniques

14 Pages Posted: 10 Jan 2015

See all articles by David Chinarro-Vadillo

David Chinarro-Vadillo

San Jorge University

Eduardo Martinez-Budria

Universidad de La Laguna

Simon Sosvilla-Rivero

UCM Institute for Economic Analysis

Date Written: January 8, 2015

Abstract

The term ”wavelets” covers a set of resources from the mathematical analysis that have proven their efficiency in system identification on areas such as hydrology, geology, glaciology, climatology and energy resources optimization. The methodology undergone on systems engineering could be extrapolated to everything conceptualized as ”complex system” whatever its nature. The wavelet techniques provide the description of non-stationary components and the evolution of macroeconomic variables in the frequency domain. The identification of predominant frequential scales and transient effects in time series, highlights the multiresolucional analysis, that would be more difficult to treat with traditional methods of econometrics. A review of the literature will show the potential problems that can be solved with these techniques, such as prediction of benefits calculated on the evolution of the risk premium of a country, the extraction of symmetric macroeconomic shocks in country clusters, or detection of transient effects on the mutual influence of sovereign bonds between pairs of countries, among others. The dissertation will culminate in specific applications that show the power of wavelet techniques in identifying possible determinants and correlation of the evolution of sovereign bond yields in the euro area countries.

Keywords: sovereign bond, wavelet, coherence, entropy, time series, correlation, comovement

JEL Classification: C49, E44, F36, G15

Suggested Citation

Chinarro-Vadillo, David and Martinez-Budria, Eduardo and Sosvilla-Rivero, Simon, Analysis of the Evolution of Sovereign Bond Yields by Wavelet Techniques (January 8, 2015). Available at SSRN: https://ssrn.com/abstract=2546936 or http://dx.doi.org/10.2139/ssrn.2546936

David Chinarro-Vadillo

San Jorge University ( email )

Campus Universitario Villanueva de Gállego Autovía
A-23 Zaragoza-Huesca Km. 299
Villanueva de Gállego, 50830
Spain

Eduardo Martinez-Budria

Universidad de La Laguna ( email )

La Laguna, Santa Cruz de Tenerife
Spain

Simon Sosvilla-Rivero (Contact Author)

UCM Institute for Economic Analysis ( email )

Carretera de Humera s/n
Madrid, Madrid 28223
Spain
+34913932626 (Phone)

HOME PAGE: http://www.ucm.es/info/ecocuan/ssr/

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