Abstract:
This paper analyzes the time-varying causality between government bond and oil returns of the United States over the monthly period of 1859:10 to 2019:03, that is, the longest possible span of historical data, starting from the beginning of the modern era of the petroleum industry. While the standard constant parameter causality test fails to pick up any evidence of causality, the time-varying framework shows evidence of bi-directional spillovers over the entire sample period. The results are robust to the inclusion of stock returns as a control variable in the model. We also detect evidence of time-varying causality-in-volatility between sovereign bond and oil markets, as well as spillovers in returns and volatility from the oil market to corporate bonds.
