Government bond market linkages within EMU: evidence from a multivariate Granger causality analysis

The paper investigates empirically and from a dynamic perspective the causality relationships between the different EMU's government bond markets. We focus on two main periods: the pre-crisis period (from November 2003 to September 2008), and the crisis period (from September 2008 to February 2013). Using a multivariate Granger causality approach, we find that the integration of government bond markets is week, and the number and the direction of causality change during the crisis. Furthermore, countries exhibit different paths of financial convergence with Germany that we consider to be virtually free of risk, especially during the crisis period. These findings have implications for investors in terms of the diversification of their portfolios, and for policymakers in terms of managing common monetary policy.