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U.S. real interest rates and default risk in emerging economies

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  • Nathan Foley-Fisher
  • Bernardo Guimaraes

Abstract

This paper empirically investigates the impact of changes in U.S. real interest rates on sovereign default risk in emerging economies using the method of identification through heteroskedasticity. Policy-induced increases in U.S. interest rates starkly raise default risk in emerging market economies. However, the overall correlation between U.S. 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://www.federalreserve.gov/pubs/ifdp/2012/1051/default.htm
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File URL: http://www.federalreserve.gov/pubs/ifdp/2012/1051/ifdp1051.pdf
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Bibliographic Info

Paper provided by Board of Governors of the Federal Reserve System (U.S.) in its series International Finance Discussion Papers with number 1051.

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Date of creation: 2012
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Handle: RePEc:fip:fedgif:1051

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  1. Martin Uribe & Vivian Yue, 2004. "Country spreads and emerging countries: who drives whom?," Proceedings, Federal Reserve Bank of San Francisco, issue Jun.
  2. Bernardo Guimaraes, 2008. "Optimal external debt and default," LSE Research Online Documents on Economics 3604, London School of Economics and Political Science, LSE Library.
  3. 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.
  4. Pablo A. Neumeyer & Fabrizio Perri, 2004. "Business cycles in emerging economies: the role of interest rates," Staff Report 335, Federal Reserve Bank of Minneapolis.
  5. 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, vol. 78(311), pages 429-439, 07.
  6. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
  7. Rigobon, Roberto & Sack, Brian, 2004. "The impact of monetary policy on asset prices," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1553-1575, November.
  8. 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.
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Cited by:
  1. Urban Sila, 2009. "Can Family-Support Policies Help Explain Differences in Working Hours Across Countries?," CEP Discussion Papers dp0955, Centre for Economic Performance, LSE.
  2. Nicholas Oulton & Ana Rincon-Aznar, 2009. "Rates of return and alternative measures of capital input: 14 countries and 10 branches, 1971-2005," LSE Research Online Documents on Economics 28687, London School of Economics and Political Science, LSE Library.
  3. 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.
  4. 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.

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