Dynamics of International Integration of Government Securities’ Markets

This paper investigates a number of specific questions related to the dynamics of international government bond market integration in six of the G7 economies over the nearly last two decades. It examines whether such integration had been significant, the extent to which integration at the short end, and the long end, of the yield curve differed; what was the nature of such integration; and the extent of the decoupling of the long-term rates from short-term rates. These issues are investigated using the rigorous smooth-transition copula-GARCH model framework. The results show that the integration at the long end of the yield curve had been pronounced and was significantly greater than at the short end. Decoupling between the short and long end of the yield curve was notable, with important implications for the efficacy of monetary policy. JFL classification: C32, E43, G15