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Does Macroeconomic Transparency Help Governments Be Solvent? Evidence from Recent Data

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Author Info

  • Ramzi Mallat

    ()
    (EM Lyon Business School & University of Lyon 2, France)

  • Duc Khuong Nguyen

    ()
    (ISC Paris School of Management)

Abstract

This paper investigates whether macroeconomic and data transparency standards lead to lower borrowing costs in sovereign bond markets. We essentially show that emerging market countries which subscribed to the Special Data Dissemination Standard (SDDS) experienced a significant decline in borrowing cost proxied by sovereign yield spreads on secondary markets. However, the adherence of these markets to the Code of Good Practices on Transparency in Monetary and Financial Policies caused a significant increase in the yield spreads. There is no impact of the adherence to the Code of Good Practices in Fiscal Transparency on the changes of sovereign spreads. In addition, the results suggest that a debtor country’s internal liquidity factor (measured by the total reserves to total external debt service ratio) and external liquidity conditions (measured by the yield on US longterm bond) are the most important determinants of emerging market spreads.

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File URL: http://www.depocenwp.org/upload/pubs/NguyenDucKhuong/Does%20macroeconomic%20transparency.pdf
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Bibliographic Info

Paper provided by Development and Policies Research Center (DEPOCEN), Vietnam in its series Working Papers with number 03.

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Length: 21 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:dpc:wpaper:0307

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Related research

Keywords: Emerging markets; Transparency; Standards and Codes; International financial architecture; Sovereign debt and yield spreads;

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  1. R. Gaston Gelos & Shang-Jin Wei, 2002. "Transparency and International Investor Behavior," NBER Working Papers 9260, National Bureau of Economic Research, Inc.
  2. John Cady, 2005. "Does SDDS Subscription Reduce Borrowing Costs for Emerging Market Economies?," IMF Staff Papers, Palgrave Macmillan, vol. 52(3), pages 6.
  3. Edwards, Sebastian, 1984. "LDC Foreign Borrowing and Default Risk: An Empirical Investigation, 1976-80," American Economic Review, American Economic Association, vol. 74(4), pages 726-34, September.
  4. Sebastian Edwards, 1984. "LDC's Foreign Borrowing and Default Risk: An Empirical Investigation," NBER Working Papers 1172, National Bureau of Economic Research, Inc.
  5. Gianluigi Ferrucci, 2003. "Empirical determinants of emerging market economies' sovereign bond spreads," Bank of England working papers 205, Bank of England.
  6. Jochen R. Andritzky & Geoffrey J. Bannister & Natalia T. Tamirisa, 2005. "The Impact of Macroeconomic Announcements on Emerging Market Bonds," IMF Working Papers 05/83, International Monetary Fund.
  7. Juttner, D. Johannes & Chung, David & Leung, Wayne, 2006. "Emerging market bond returns--An investor perspective," Journal of Multinational Financial Management, Elsevier, vol. 16(2), pages 105-121, April.
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