Asymmetric dynamic risk transmission between financial stress and monetary policy uncertainty: thinking in the post-covid-19 world

Considering the dramatically increasing impact of the COVID-19 outbreak on monetary policy and the uncertainty in the financial system, we aim to examine the dynamic asymmetric risk transmission between financial stress and monetary policy uncertainty. Our sample covers 30 years of data. We first employ the conventional Granger causality test to examine the average relationship between financial stress and monetary policy uncertainty, and the results cannot provide evidence of causality between them. However, from an asymmetric perspective, we further detect the strongly apparent existence of the asymmetric structure of causality between them. Finally, we conduct further research on the asymmetric impacts from a time-varying perspective. The time-varying test finds that this relationship can be influenced by major events, especially the dot-com bubble, the 2009 financial crisis, and the current COVID-19 pandemic. Thus, one can learn more information about the influencing mechanism between financial stress and monetary policy with our work, which may be beneficial for making better decisions in the future. © 2023, The Author(s).

Sovereign bonds and flight to safety: Implications of the COVID-19 crisis for sovereign debt markets in the G-7 and E-7 economies

This study investigates the implications of the COVID-19 pandemic for sovereign debt in the G-7 and E-7 economies and explores the notion of sovereign bonds as a safe haven. Using a set of panel regression and dynamic connectedness TVP-VAR approaches, our results reveal that the impact of COVID-19 global case numbers on sovereign bonds has been contingent on the level of the country's financial and economic development. More precisely, our findings suggest that G-7 countries, where economic development is typically higher, have seen a negative effect of the COVID-19 pandemic on sovereign bond yield: sovereign 10-year bond yields declined as the number of COVID-19 global confirmed cases increased in G-7 countries. However, in E-7 countries, where economic growth and development are typically lower, sovereign bond yields responded positively to the initial increase in COVID-19 global confirmed case numbers, but this positive effect is not statistically significant. We also find that the G-7 and E-7 economies have a strong time-varying connectedness in relation to their bond markets and this effect is more pronounced in G-7 economies. Daily Infectious Disease Equity Market Volatility is likely to be the strongest predictor of total connectedness. Concomitantly, we shed new light on the predictive power of the number of COVID-19 confirmed cases and deaths, and the Daily Infectious Disease Equity Market Volatility Tracker on the interdependence of these sovereign bond markets. Overall, this paper highlights the heterogeneous effect of the COVID-19 pandemic on sovereign bond yields in G-7 and E-7 countries and the notion that the developed economies, with their developed sovereign bond markets, are still seen as a safe haven during times of crisis. © 2023 The Authors