Work detail

Spread Determinants and Model Uncertainty: A Bayesian Model Averaging Analysis

Author: Mgr. Seman Vojtěch
Year: 2012 - winter
Leaders:
Consultants:
Work type: Doctoral
Language: English
Pages: 87
Awards and prizes:
Link:
Abstract: The spread between interest rate and sovereign bond rate is commonly used in-
dicator for country's probability to default. Existing literature proposes many
di erent potential spread determinants but fails to agree on which of them
are important. As a result, there is a considerable uncertainty about the cor-
rect model explaining the spread. We address this uncertainty by employing
Bayesian Model Averaging (BMA). The BMA technique attempts to consider
all the possible combinations of variables and averages them using a model
t measure as weights. For this empirical exercise, we consider 44 di erent
explanatory variables for a panel of 47 OECD countries for the 1980-2010 pe-
riod. Most of the previously suggested determinants, including "public debt"
or "budget balance", were attributed low inclusion probabilities. We nd a role
of variables previously not included in the literature's spread determinants -
"unemployment" and "government consumption" which rank high by the in-
clusion probability. These results are robust to a wide range of both parameter
and model priors.
Downloadable: Rigorous Thesis Seman
December 2020
MonTueWedThuFriSatSun
 123456
78910111213
14151617181920
21222324252627
28293031   

Partners

Deloitte

Sponsors

CRIF
McKinsey
Patria Finance