Effects of macroeconomic variables on Southern European government bond spreads in different monetary policy environments

Abstract

This thesis assesses the impact of the three major macroeconomic variables inflation, GDP growth and unemployment on the sovereign bond spreads of the GIIPS countries. I regress these monthly variables on the monthly spreads over the last ten years. By controlling for various other macroeconomic variables and daily data, I ensure to observe their effect on the spreads as well. Furthermore, I split the data of the main monthly data set into two different periods (QE and QT-times) to obtain possible differences in the spread determinants during different monetary policy environments. The research focus is to determine the effect of the three variables in general first, before analysing them in different monetary policy periods (QE- and QT-period). Indeed, all three main variables of interest are very significant drivers of the respective spreads for the whole time period, regardless of the monetary policy environment and within the single countries. But other control variables and variables such as the VIX index or credit ratings also have a significant impact on the spreads. Especially the QT-period needs to be observed further over the future as QT in the Eurozone just began. Existing literature has shown that monetary policies by the ECB have a significant impact on the spreads, but my results indicate that the three macroeconomic and market factors have a very significant impact on the spreads, regardless of the environment or country, as well.

Date of Award	28 Jun 2023
Original language	English
Awarding Institution	Universidade Católica Portuguesa
Supervisor	Eva Schliephake (Supervisor)