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US real interest rates and default risk in emerging economies

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  • Foley-Fisher, Nathan
  • Guimarães, Bernardo

Abstract

This paper empirically investigates the impact of changes in US real interest rates on sovereign default risk in emerging economies using the method of identification through heteroskedasticity. Policy-induced increases in US interest rates starkly raise default risk in emerging market economies. However, the overall correlation between US real interest rates and the risk of default is negative, demonstrating that the effects of other variables dominate the anterior relationship

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File URL: http://bibliotecadigital.fgv.br/dspace/bitstream/10438/10007/1/TD%20295%20-%20C-Micro%2013%20-%20Nathan%20Foley-Fisher%20e%20Bernardo%20Guimaraes.pdf
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Bibliographic Info

Paper provided by Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil) in its series Textos para discussão with number 295.

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Date of creation: 12 Sep 2012
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Handle: RePEc:fgv:eesptd:295

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  1. Neumeyer, Pablo Andrés & Perri, Fabrizio, 2004. "Business Cycles in Emerging Economies: The Role of Interest Rates," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4482, C.E.P.R. Discussion Papers.
  2. Rigobon, Roberto & Sack, Brian, 2004. "The impact of monetary policy on asset prices," Journal of Monetary Economics, Elsevier, Elsevier, vol. 51(8), pages 1553-1575, November.
  3. Martin Uribe & Vivian Z. Yue, 2003. "Country Spreads and Emerging Countries: Who Drives Whom?," NBER Working Papers 10018, National Bureau of Economic Research, Inc.
  4. Guimarães, Bernardo, 2007. "Optimal external debt and default," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6035, C.E.P.R. Discussion Papers.
  5. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
  6. Bernardo Guimaraes, 2011. "Sovereign default: which shocks matter?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(4), pages 553-576, October.
  7. Francis A. Longstaff & Jun Pan & Lasse H. Pedersen & Kenneth J. Singleton, 2007. "How Sovereign is Sovereign Credit Risk?," NBER Working Papers 13658, National Bureau of Economic Research, Inc.
  8. Carlo Rosa, 2011. "The Validity of the Event‐study Approach: Evidence from the Impact of the Fed's Monetary Policy on US and Foreign Asset Prices," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 78(311), pages 429-439, 07.
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Cited by:
  1. Nicholas Oulton & Ana Rincon-Aznar, 2009. "Rates of Return and Alternative Measures of Capital Input: 14 Countries and 10 Branches, 1971-2005," CEP Discussion Papers, Centre for Economic Performance, LSE dp0957, Centre for Economic Performance, LSE.
  2. 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.
  3. Urban Sila, 2009. "Can family-support policies help explain differences in working hours across countries?," LSE Research Online Documents on Economics, London School of Economics and Political Science, LSE Library 28684, London School of Economics and Political Science, LSE Library.
  4. Bernardo Guimaraes, 2011. "Sovereign default: which shocks matter?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(4), pages 553-576, October.

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