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The role of domestic fundamentals on the economic vulnerability of emerging markets

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  • Rocha, Katia
  • Moreira, Ajax

Abstract

This paper empirically evaluates policies that can potentially reduce the economic vulnerability of emerging market economies. Through panel data estimation on a group of 23 countries, we relate sovereign spreads to global risk shocks, and explore the argument suggested by Calvo (2003) which focuses on macroeconomic fundamentals as multipliers of external shocks. The results support policies towards financial liberalization, public debt management, consistent economic growth, development of the domestic financial market and improvements in governance indicators. We argue that those policies were crucial for the projected rapid economic rebound of the emerging market economies facing the global crisis of 2007-2009.

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Bibliographic Info

Article provided by Elsevier in its journal Emerging Markets Review.

Volume (Year): 11 (2010)
Issue (Month): 2 (June)
Pages: 173-182

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Handle: RePEc:eee:ememar:v:11:y:2010:i:2:p:173-182

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Web page: http://www.elsevier.com/locate/inca/620356

Related research

Keywords: Sovereign spreads Economic vulnerability Emerging markets Global risk aversion;

References

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  1. Bernardin Akitoby & Thomas Stratmann, 2008. "Fiscal Policy and Financial Markets," Economic Journal, Royal Economic Society, vol. 118(533), pages 1971-1985, November.
  2. Afonso, Antonio & Strauch, Rolf, 2007. "Fiscal policy events and interest rate swap spreads: Evidence from the EU," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 17(3), pages 261-276, July.
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  9. Wälti, Sébastien & Weder, Ghislaine, 2009. "Recovering from bond market distress: Good luck and good policy," Emerging Markets Review, Elsevier, vol. 10(1), pages 36-50, March.
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  12. Andritzky, Jochen R. & Bannister, Geoffrey J. & Tamirisa, Natalia T., 2007. "The impact of macroeconomic announcements on emerging market bonds," Emerging Markets Review, Elsevier, vol. 8(1), pages 20-37, March.
  13. Sebastian Edwards, 2005. "Capital Controls, Sudden Stops and Current Account Reversals," NBER Working Papers 11170, National Bureau of Economic Research, Inc.
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  15. 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.
  16. Hong G. Min, 1998. "Determinants of emerging market bond spread : do economic fundamentals matter?," Policy Research Working Paper Series 1899, The World Bank.
  17. Gianluigi Ferrucci, 2003. "Empirical determinants of emerging market economies' sovereign bond spreads," Bank of England working papers 205, Bank of England.
  18. Sebastian Edwards, 2007. "Capital Controls, Capital Flow Contractions, and Macroeconomic Vulnerability," NBER Working Papers 12852, National Bureau of Economic Research, Inc.
  19. Ebner, André, 2009. "An empirical analysis on the determinants of CEE government bond spreads," Emerging Markets Review, Elsevier, vol. 10(2), pages 97-121, June.
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Cited by:
  1. Montes, Gabriel Caldas & Tiberto, Bruno Pires, 2012. "Macroeconomic environment, country risk and stock market performance: Evidence for Brazil," Economic Modelling, Elsevier, vol. 29(5), pages 1666-1678.

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