Are there Spillover Effects From Munis?

IMF Working Papers, December 1, 2011

Source details

Objective: Study spillover effects within bond markets for individual U.S. states and between those markets and the U.S. Treasury securities market.
Data: daily bond yield data over the period 2005 to 2011.
Methodology:
- Forbes and Rigobon (2002) spillover test.
- Causality tests in the frequency domain.

Within-state-market spillovers:
- Between most markets for individual U.S. state bonds there are negative spillovers.
- Interpretation: an increase in borrowing costs in one U.S. state results in better borrowing conditions for other states.
Between state (municipal) and federal (Treasury) markets:
- No substantial spillover effect between shocks originating from state securities and from federal markets, except for a few large issuers.
Directional causality:
- The Treasury bond market directly causes changes in the markets for municipal bonds in both the short and long run.
- There is some evidence of causality from the municipal to the Treasury bond market, but only of a long-run nature.
Policy implication summary:
- Results shed light on the policy debate on the nature of spillover effects within fiscal unions.

Authors: Bertrand Candelon, Rabah Arezki, Amadou N Sy
Date: December 1, 2011
Series: Working Paper No. 2011/290
Issue: 290
Pages: 19
DOI: https://doi.org/10.5089/9781463927240.001
Stock No: WPIEA2011290
ISBN: 9781463927240
ISSN: 1018-5941
Subjects/Keywords: Bond yields, Municipal bonds, Securities markets, Treasury bills and bonds, Yield curve; bond market, market, municipal bond, Treasury bond market, WP

Source: IMF Working Paper "Are there Spillover Effects From Munis?" (Working Paper No. 2011/290, December 1, 2011).

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