International bond market linkages: a structural VAR analysis

This paper examines linkages between government bond markets of five industrialized countries (US, Japan, Germany, UK and Canada) during the period of January 1986 to December 2000. Recursive cointegration analysis clearly shows that no long-run relationship exists among the five major bond markets during the sample period. The contemporaneous causal pattern of the strong correlations between bond market innovations is uncovered, building on the recent advance in vector autoregression analysis. The identification of such a contemporaneous causal pattern further improves the investigation of the dynamic linkage pattern, which is based on data-determined forecast error variance decomposition. A number of new empirical regularities on international bond market linkages have been documented.