Work detail

Sovereign debt markets: Where does the Czech Republic stand?

Author: Mgr. Věra Bludská
Year: 2014 - summer
Work type: Finance, Financial Markets and Banking
Language: English
Pages: 82
Awards and prizes: M.A. with distinction from the Dean of the Faculty of Social Sciences for an excellent state-final examination performance.
Abstract: This thesis deals with the relationship between yield spreads on the sovereign bonds and their
determinants with a primary focus on the Czech Republic. First, a homogeneous panel of Visegrad group
countries (V4) was investigated by the pooled mean group (P
MG) method of Pesaran et al. (1998). It was
found that debt
gdp ratio along with VIX, the “fear gauge”, are the main factors driving the spread
dynamics in the V4 group. Based on the results from PMG estimation, we estimate a three
vector au
toregression (VAR) model and structural VAR (SVAR) model in order to observe spread
reactions on external shocks. Among the V4 group countries, Hungary exhibits the largest spread
response to a VIX shock. Overall, the (S)VAR results confirmed that countrie
s with higher levels of yields
before crisis had also a stronger reaction to the m
arket disturbances during 2007

2009. Furthermore, it
found that for the period 2010

2013, the standard model (macroeconomic fundamentals plus global
risk aversion facto
rs) provided less reliable results. As a remedy, financial soundness indicators were
incorporated into the VAR model. We conclude that it is important to take into account country’s
financial sector vulnerabilities when describing the spread dynamics since




Patria Finance