Time-varying integration of the sovereign bond markets in European post-transition economies

Highlight
• The time-varying bond market integration of European post-transition countries
• Multivariate GARCH models
• Integration has decreased with the financial crisis
• The decrease leveled off relatively swiftly soon after.

In this paper, we examine the time-varying integration between eight European post-transition government bond markets and the Eurozone bond market. The objective is twofold: first is to measure the level of integration in these economies, and the second is to better understand some of the fundamental drivers of integration. Our results suggest that integration varies widely across the region. One of the major drivers of integration is economic development, as more advanced countries generally had higher levels of integration. Moreover, joining the European Union either exerted a positive boost or was neutral with regards to sovereign bond integration. Finally, integration changes over time; in particular, integration has decreased with the financial crisis, although the decrease leveled off relatively swiftly soon after.