Working Paper: CEPR ID: DP11122
Authors: Roel Beetsma; Massimo Giuliodori; Frank de Jong; Jesper Hanson
Abstract: This paper provides evidence of spillovers from foreign primary public debt issues into domestic secondary market auction cycles in the euro area. It also confirms the presence of such auction cycles in response to domestic debt issues. These results are consistent with the theory of primary dealers’ limited risk-bearing capacity. Consistent with the theory, domestic auction cycles in response to new debt issues are stronger during the crisis period, while the cross-border effects tend to be stronger in the pre-crisis period, possibly as a result of reduced integration of euro area sovereign bond markets during the crisis.
Keywords: auctions; auction cycles; crossborder effects; public debt; crisis; primary dealers; limited risk-bearing capacity; primary markets; secondary markets
JEL Codes: G12; G18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Domestic auction cycle in response to new debt issues (H63) | Secondary market yields increase prior to an auction (D44) |
| Domestic auction cycle in response to new debt issues (H63) | Secondary market yields decrease after an auction (D44) |
| Crisis period (H12) | Domestic auction cycle is larger (D44) |
| Domestic debt issues (H63) | Foreign secondary market yield responses (G15) |
| Spillover effects from domestic debt issues (F65) | Foreign auction cycles are more prevalent before the crisis (F44) |
| Reduction in integration of euro area sovereign debt markets during the crisis (F36) | Spillover effects from domestic debt issues to foreign auction cycles (F65) |