Government Interventions and Sovereign Bond Market Volatility during COVID-19: A Quantile Analysis
19 Pages Posted: 12 Apr 2021 Last revised: 3 Nov 2022
Date Written: February 11, 2022
Abstract
We test the interaction between COVID-19 governments' interventions, COVID-19- induced uncertainty, and the volatility of sovereign bonds. Using a panel-quantile approach and a comprehensive dataset of 31 countries worldwide, we document that containment and closure policies tend to amplify volatility. Furthermore, the price variability is augmented by the spread of the pandemic itself. On the contrary, economic support policies have a substantial stabilizing effect on bond price fluctuations. Both phenomena are not subsumed by additional control variables and are robust to multiple considerations. Our findings may serve financial market participants in their risk management decisions, as well as policy makers to better shape their preparedness for future pandemics.
Keywords: COVID-19, government bond price volatility, government policy responses, international financial markets, containment and closure, economic support, panel quantile regression.
JEL Classification: G01, G12, G15, G18, G41, H12, I18
Suggested Citation: Suggested Citation