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Title: Bond yield modelling and its application in the European Union
Author: Zhang, Dalu
Awarding Body: University of East Anglia
Current Institution: University of East Anglia
Date of Award: 2013
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Forecasting crises has always been an interesting and important topic for econometricians or statisticians. Literature suggests that government bond yields can be a valid leading indicator for this purpose. This thesis uses government bond yields and applies various models to forecast the crisis which happened recently. Chapter 2 investigates a model utilising the term structure of interest rates to predict output growth and recession in the UK. In contrast to previous literature, information retrieved from the whole yield curve is used rather than just the yield spread. Using di�erent methods, our models are found to outperform the yield spread models both in in-sample and out-of-sample forecasting. Notably, the B-spline fitting model is able to forecast the 2009-2010 recession. Moreover, the model with lag of growth shows great forecasting ability in out-of-sample output growth forecasting. In most cases, models based on B-spline perform better than the ones based on the Diebold-Li framework. Chapter 3 examines the existence of time series non-linearities in the real output growth / recession-term spread relationship. Vector Autoregression (VAR), Threshold VAR (TVAR), Structural break VAR (SBVAR), Structural break threshold VAR (SBTVAR) are applied in the analysis. The in-sample results indicate there are non-linear components in this relationship. And this non-linearity tends to be caused by structural breaks. The best in-sample model also shows its robustness on arrival of new information in the out-of-sample tests. Evidence shows the model with only structural break non-linearity outperforms linear models in 1-quarter, 3-quarter and 4-quarter ahead forecasting. The European sovereign debt crisis has become a very popular topic since late 2009. In Chapter 4, the sovereign debt crisis is investigated by calculating the probabilities of the potential future crisis of 11 countries in the European Union. We use sovereign 2 3 spreads of the European countries against Germany as targets and apply the GARCH based vine copula simulation technique. The methodology solves the di�culties of calculating the probabilities of rarely happening events and takes sovereign debt movement dependence, especially tail dependence, into consideration. Results indicate that Italy and Spain are the most likely next victims of the sovereign debt crisis, followed by Ireland, France and Belgium. The UK, Sweden and Denmark, which are outside EMU, are the most financially stable countries in the sample.
Supervisor: Not available Sponsor: Not available
Qualification Name: Thesis (Ph.D.) Qualification Level: Doctoral
EThOS ID:  DOI: Not available