Does bond market stimulate economic growth? empirical evidence from euro area countries

This paper questions on the dynamic causal relationships between the government bond market and real GDP growth for 16 euro zone countries. To address this question, we consider panel cointegration and panel–base VAR and VECM techniques accounting for heterogeneous country effect. We estimate our model with quarterly data on a large panel of countries over the 2001-2011 decade. We find evidence of the supply-leading channel and to a lesser extent of the demand-leading channel. This outcome is far from being trivial, as it supports the assumption that real economic activity is greatly influenced by the dynamics of the bond market but also that of the reverse-causality. Our results are robust to different specifications, the use of different set of periods and econometric approaches.