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United States interest rates, Latin American debt and financial contagion

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  • Velloso, Helvia
  • Bustillo, Inés

Abstract

This article analyses the way in which Latin American bond spreads were affected by the changes in United States interest rates in the second half of the 1990s. Empirical analysis shows that, contrary to theory, in this period the spreads of emerging market bonds and United States interest rates moved in opposite directions; that there was financial contagion; that contraction of liquidity and financial contagion can offset the effects of those interest rates on the spreads of emerging market bonds at times of economic and financial turbulence and thus become the most important factors in the evolution of those spreads; and that the increased financial integration associated with the current globalization process has heightened the vulnerability of the developing economies to external shocks.

Suggested Citation

  • Velloso, Helvia & Bustillo, Inés, 2002. "United States interest rates, Latin American debt and financial contagion," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    • Handle: RePEc:ecr:col070:10908
    Note: Includes bibliography
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    References listed on IDEAS

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    1. Kaminsky, Graciela L & Reinhart, Carmen M, 1998. "Financial Crises in Asia and Latin America: Then and Now," American Economic Review, American Economic Association, vol. 88(2), pages 444-448, May.
    2. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
    3. Rodrigo Valdés, 1997. "Emerging Market Contagion: Evidence and Theory," Working Papers Central Bank of Chile 07, Central Bank of Chile.
    4. Dooley, Michael & Fernandez-Arias, Eduardo & Kletzer, Kenneth, 1996. "Is the Debt Crisis History? Recent Private Capital Inflows to Developing Countries," The World Bank Economic Review, World Bank, vol. 10(1), pages 27-50, January.
    5. Ocampo, José Antonio, 1999. "International financial reform: the broad agenda," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), December.
    6. Mr. Vivek B. Arora & Mr. Martin D. Cerisola, 2000. "How Does U.S. Monetary Policy Influence Economic Conditions in Emerging Markets?," IMF Working Papers 2000/148, International Monetary Fund.
    7. Velloso, Helvia & Bustillo, Inés, 2000. "Bond markets for Latin American debt in the 1990s," Series Históricas 7687, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL).
    8. -, 2002. "Growth with stability: financing for development in the new international context," Libros de la CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), number 2319 edited by Eclac.
    9. Steven B. Kamin & K von Kleist, 1999. "The evolution and determinants of emerging markets credit spreads in the 1990s," BIS Working Papers 68, Bank for International Settlements.
    10. Calvo, Sara & Reinhart, Carmen, 1996. "Capital flows to Latin America : Is there evidence of contagion effects?," Policy Research Working Paper Series 1619, The World Bank.
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    Cited by:

    1. Kamila Tomczak, 2023. "Transmission of the 2007–2008 financial crisis in advanced countries of the European Union," Bulletin of Economic Research, Wiley Blackwell, vol. 75(1), pages 40-64, January.

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