Work detail

Central Bank Communication and Correlation between Financial Markets: Evidence from the Euro Area

Author: Mgr. Milan Kučera
Year: 2019 - winter
Leaders: prof. Roman Horváth Ph.D.
Work type: Finance, Financial Markets and Banking
Language: English
Pages: 60
Awards and prizes:
Abstract: The aim of this thesis is to assess the effect of ECB’s communication on financial market comovements between Italy, Spain, Germany and France using MGARCH family of models. Author
addresses partially the potential problem of endogeneity of central bank communication by using
Composite indicator of systemic stress and excess liquidity. The author estimates the impact of
ECB’s communication on correlations of government bond yield changes using daily data from
2008 to 2014. For this purpose author employs bivariate diagonal BEKK(1,1) and bivariate scalar
BEKK(1,1) with surprises of macroeconomic announcements under control. The results are
consistent and robust for all models, the results suggest that communication does not have
statistically significant effect on financial market correlations in the Euro area. Furthermore,
author defines delta functions which describe and quantify the immediate and full effect of
explanatory variables on conditional correlations in bivariate diagonal BEKK(1,1) and bivariate
scalar BEKK(1,1). To the best of author’s knowledge this thesis is the only one in the literature
which examines this effect of ECB’s communication by MGARCH models




Patria Finance