Are There Spillover Effects From Munis?

R. Arezki*, B. Candelon*, A.N.R. Sy*

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review


This paper studies the spillover effects both within the bond markets for individual US states and between the latter and the market for US Treasury securities. We perform the Forbes and Rigobon [2002] spillover test using daily bond yield data over the period 2005 to 2011. Results are twofold. First, we find that between most markets for individual US state bonds there are negative spillovers. In other words, an increase in borrowing costs in one US state results in better borrowing conditions for other states. Second, we find no substantial spillover effect between shocks originating from state securities and from federal markets, except for a few large issuers. Using causality tests in the frequency domain, we find that the Treasury bond market directly causes changes in the markets for municipal bonds in both the short and long run. There is also some evidence of causality from the municipal to the Treasury bond market, but only of a long run nature. These results indicate that US Treasury securities are isolated from shocks affecting municipal bonds, thus highlighting the policy debate on the nature of spillover effects within fiscal unions.
Original languageFrench
Pages (from-to)211-227
Number of pages17
JournalRevue Economique
Issue number2
Publication statusPublished - 1 Sept 2017

JEL classifications

  • e44 - Financial Markets and the Macroeconomy
  • g10 - General Financial Markets: General (includes Measurement and Data)
  • h77 - "Intergovernmental Relations; Federalism; Secession"



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