Advanced Search
MyIDEAS: Login

Emerging Market Sovereign Spreads, Global Financial Conditions and US Macroeconomic News

Contents:

Author Info

  • Fatih Ozatay
  • Erdal Ozmen
  • Gulbin Sahinbeyoglu

    ()
    (Research and Monetary Policy Department, The Central Bank of Turkey)

Abstract

This paper investigates the impact of global financial conditions, US macroeconomic news and domestic macroeconomic fundamentals on the evolution of Emerging Market Bond Index EMBI spreads for a panel of 18 emerging markets (EM) using daily data. To this end, we employ not only the conventional panel data estimation procedures, but also the recently developed common correlated effects panel mean group method which incorporates heterogeneity by allowing country-specific coefficients whilst accounting for the effects of common global shocks such as contagion. The results strongly suggest that the long-run evolution of EMBI spreads depends on external factors such as changes in global liquidity conditions, risk appetite and crises contagion. Domestic macroeconomic fundamentals, proxied by sovereign country ratings, are also found to be important in explaining the spreads. The results from panel equilibrium correction models suggest that EMBI spreads also respond substantially to US macroeconomic news, as well as changes in the Federal Reserve’s target interest rates. However, the magnitude and the sign of the effect of US macroeconomic news crucially depend on the state of the US economy, such as the presence of inflation dominance.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.erf.org.eg/CMS/getFile.php?id=1204
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Namees Nabeel)
Download Restriction: no

File URL: http://www.erf.org.eg/cms.php?id=NEW_publication_details_working_papers&publication_id=956
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Namees Nabeel)
Download Restriction: no

Bibliographic Info

Paper provided by Economic Research Forum in its series Working Papers with number 400.

as in new window
Length: 27 pages
Date of creation: May 2008
Date of revision: May 2008
Publication status: Published by The Economic Research Forum (ERF)
Handle: RePEc:erg:wpaper:400

Contact details of provider:
Postal: 7 Boulos Hanna Street, Dokki, Cairo
Phone: 202-3370810
Fax: 202-3616042
Email:
Web page: http://www.erf.org.eg
More information through EDIRC

Related research

Keywords:

Other versions of this item:

Find related papers by JEL classification:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Peter C.B. Phillips & Hyungsik R. Moon, 1999. "Linear Regression Limit Theory for Nonstationary Panel Data," Cowles Foundation Discussion Papers 1222, Cowles Foundation for Research in Economics, Yale University.
  2. Fernando A. Broner & R. Gaston Gelos & Carmen Reinhart, 2004. "When in Peril, Retrench: Testing the Portfolio Channel of Contagion," NBER Working Papers 10941, National Bureau of Economic Research, Inc.
  3. Martin Uribe & Vivian Yue, 2004. "Country spreads and emerging countries: who drives whom?," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  4. Richard Clarida & Daniel Waldman, 2007. "Is Bad News About Inflation Good News for the Exchange Rate?," NBER Working Papers 13010, National Bureau of Economic Research, Inc.
  5. Eduardo Levy Yeyati & Martín González Rozada, 2005. "Global Factors and Emerging Market Spreads," Business School Working Papers globalfactorsspreads, Universidad Torcuato Di Tella.
  6. Guillermo A. Calvo, 2008. "Crises in Emerging Markets Economies: A Global Perspective," Central Banking, Analysis, and Economic Policies Book Series, in: Kevin Cowan & Sebastián Edwards & Rodrigo O. Valdés & Norman Loayza (Series Editor) & Klaus Schmid (ed.), Current Account and External Financing, edition 1, volume 12, chapter 3, pages 085-115 Central Bank of Chile.
  7. 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.
  8. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2006. "Real-time price discovery in global stock, bond and foreign exchange markets," International Finance Discussion Papers 871, Board of Governors of the Federal Reserve System (U.S.).
  9. Graciela L. Kaminsky & Carmen M. Reinhart & Carlos A. Vegh, 2004. "When it Rains, it Pours: Procyclical Capital Flows and Macroeconomic Policies," NBER Working Papers 10780, National Bureau of Economic Research, Inc.
  10. Balduzzi, Pierluigi & Elton, Edwin J. & Green, T. Clifton, 2001. "Economic News and Bond Prices: Evidence from the U.S. Treasury Market," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 36(04), pages 523-543, December.
  11. Dailami, Mansoor & Masson, Paul R. & Padou, Jean Jose, 2005. "Global monetary conditions versus country-specific factors in the determination of emerging market debt spreads," Policy Research Working Paper Series 3626, The World Bank.
  12. Kapetanios, George & Pesaran, M. Hashem & Yamagata, Takashi, 2006. "Panels with Nonstationary Multifactor Error Structures," IZA Discussion Papers 2243, Institute for the Study of Labor (IZA).
  13. John H. Boyd & Jian Hu & Ravi Jagannathan, 2005. "The Stock Market's Reaction to Unemployment News: Why Bad News Is Usually Good for Stocks," Journal of Finance, American Finance Association, vol. 60(2), pages 649-672, 04.
  14. Kaminsky, Graciela L. & Schmukler, Sergio L., 1999. "What triggers market jitters?: A chronicle of the Asian crisis," Journal of International Money and Finance, Elsevier, vol. 18(4), pages 537-560, August.
  15. Pablo A. Neumeyer & Fabrizio Perri, 2004. "Business Cycles in Emerging Economies: The Role of Interest Rates," NBER Working Papers 10387, National Bureau of Economic Research, Inc.
  16. Im, Kyung So & Pesaran, M. Hashem & Shin, Yongcheol, 2003. "Testing for unit roots in heterogeneous panels," Journal of Econometrics, Elsevier, vol. 115(1), pages 53-74, July.
  17. Jon Wongswan, 2003. "Transmission of information across international equity markets," International Finance Discussion Papers 759, Board of Governors of the Federal Reserve System (U.S.).
  18. McQueen, Grant & Roley, V Vance, 1993. "Stock Prices, News, and Business Conditions," Review of Financial Studies, Society for Financial Studies, vol. 6(3), pages 683-707.
  19. Steven B. Kamin & Karsten von Kleist, 1999. "The evolution and determinants of emerging market credit spreads in the 1990s," International Finance Discussion Papers 653, Board of Governors of the Federal Reserve System (U.S.).
  20. Fatih Ozatay & Erdal Ozmen & Gülbin Sahinbeyoglu, 2007. "Emerging Market Sovereign Spreads, Global Financial Conditions and U.S. Macroeconomic News," ERC Working Papers 0707, ERC - Economic Research Center, Middle East Technical University, revised Dec 2007.
  21. Andersen, Torben G. & Bollerslev, Tim & Diebold, Francis X. & Vega, Clara, 2004. "Real-time price discovery in stock, bond and foreign exchange markets," CFS Working Paper Series 2004/19, Center for Financial Studies (CFS).
  22. Faust, Jon & Rogers, John H. & Wang, Shing-Yi B. & Wright, Jonathan H., 2007. "The high-frequency response of exchange rates and interest rates to macroeconomic announcements," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1051-1068, May.
  23. Hali J. Edison, 1996. "The reaction of exchange rates and interest rates to news releases," International Finance Discussion Papers 570, Board of Governors of the Federal Reserve System (U.S.).
  24. Jochen R. Andritzky & Geoffrey J. Bannister & Natalia T. Tamirisa, 2005. "The Impact of Macroeconomic Announcementson Emerging Market Bonds," IMF Working Papers 05/83, International Monetary Fund.
  25. Richard Cantor & Frank Packer, 1996. "Determinants and impacts of sovereign credit ratings," Research Paper 9608, Federal Reserve Bank of New York.
  26. Coakley, Jerry & Fuertes, Ana-Maria & Smith, Ron, 2006. "Unobserved heterogeneity in panel time series models," Computational Statistics & Data Analysis, Elsevier, vol. 50(9), pages 2361-2380, May.
  27. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2005. "The Sensitivity of Long-Term Interest Rates to Economic News: Evidence and Implications for Macroeconomic Models," American Economic Review, American Economic Association, vol. 95(1), pages 425-436, March.
  28. Mackowiak, Bartosz, 2007. "External shocks, U.S. monetary policy and macroeconomic fluctuations in emerging markets," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2512-2520, November.
  29. Kao, Chihwa, 1999. "Spurious regression and residual-based tests for cointegration in panel data," Journal of Econometrics, Elsevier, vol. 90(1), pages 1-44, May.
  30. Ana Fostel & Graciela Laura Kaminsky, 2007. "Latin America's Access to International Capital Markets: Good Behavior or Global Liquidity?," NBER Working Papers 13194, National Bureau of Economic Research, Inc.
  31. Maddala, G S & Wu, Shaowen, 1999. " A Comparative Study of Unit Root Tests with Panel Data and a New Simple Test," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 631-52, Special I.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Kennedy, Mike & Palerm, Angel, 2014. "Emerging market bond spreads: The role of global and domestic factors from 2002 to 2011," Journal of International Money and Finance, Elsevier, vol. 43(C), pages 70-87.
  2. Sanjeev Gupta & Amine Mati & Emanuele Baldacci, 2008. "Is it (Still) Mostly Fiscal? Determinants of Sovereign Spreads in Emerging Markets," IMF Working Papers 08/259, International Monetary Fund.
  3. Geert Bekaert & Campbell R Harvey & Christian T Lundblad & Stephan Siegel, 2014. "Political risk spreads," Journal of International Business Studies, Palgrave Macmillan, vol. 45(4), pages 471-493, May.
  4. Martinez, Lisana B. & Terceño, Antonio & Teruel, Mercedes, 2013. "Sovereign bond spreads determinants in Latin American countries: Before and during the XXI financial crisis," Emerging Markets Review, Elsevier, vol. 17(C), pages 60-75.
  5. Fatih Ozatay & Erdal Ozmen & Gülbin Sahinbeyoglu, 2007. "Emerging Market Sovereign Spreads, Global Financial Conditions and U.S. Macroeconomic News," ERC Working Papers 0707, ERC - Economic Research Center, Middle East Technical University, revised Dec 2007.
  6. Comelli, Fabio, 2012. "Emerging market sovereign bond spreads: Estimation and back-testing," Emerging Markets Review, Elsevier, vol. 13(4), pages 598-625.
  7. Brana, Sophie & Lahet, Delphine, 2010. "Determinants of capital inflows into Asia: The relevance of contagion effects as push factors," Emerging Markets Review, Elsevier, vol. 11(3), pages 273-284, September.
  8. Henri Audigé, 2014. "Net flows to emerging markets’ funds and the U.S. monetary policy after the subprime crisis," EconomiX Working Papers 2014-23, University of Paris West - Nanterre la Défense, EconomiX.
  9. Luca Antonio Ricci & Marcos Chamon & Yuanyan Sophia Zhang, 2011. "Country Insurance Using Financial Instruments," IMF Working Papers 11/169, International Monetary Fund.
  10. Brana, Sophie & Lahet, Delphine, 2009. "Les déterminants des entrées de capitaux en Asie : quel rôle pour les stratégies de carry trade?," L'Actualité Economique, Société Canadienne de Science Economique, vol. 85(3), pages 283-302, septembre.
  11. Fatih Ozatay, 2008. "Expansionary Fiscal Consolidations: New Evidence from Turkey," Working Papers 0805, TOBB University of Economics and Technology, Department of Economics.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:erg:wpaper:400. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Namees Nabeel).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.