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Global Spillovers into Domestic Bond Markets in Emerging Market Economies

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  • Laura Jaramillo
  • Anke Weber

Abstract

While fiscal conditions remain healthier than in advanced economies, emerging economies continue to be exposed to negative spillovers if global conditions were to become less favorable. This paper finds that domestic bond yields in emerging economies are heavily influenced by two international factors: global risk appetite and global liquidity. Using a novel approach, the analysis goes on to show that the vulnerability of emerging economies to these factors is not uniform but rather depends on country specific characteristics, namely fiscal fundamentals, financial sector openness and the external current account balance.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 13/264.

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Length: 21
Date of creation: 23 Dec 2013
Date of revision:
Handle: RePEc:imf:imfwpa:13/264

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Related research

Keywords: Spillovers; Bond markets; Emerging markets; Public debt; Emerging Market Economies; Fiscal Deficit; Global Spillovers; bond yields; domestic bond; sovereign bond; domestic bond markets; international financial statistics; financial sector; term bond; local currency bond; financial markets; local currency bond markets; local bond; local bond markets; long-term bond yields; money market; international finance statistics; bonds; financial stability; stock market; sovereign bond markets; financial intermediation; long term bond; bond spread; sovereign bonds; financial repression; stock price; government bond; government bond yields; nominal interest rate; money market rates; emerging market bond; financial intermediaries; stock-flow adjustments; financial system; bond spreads;

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  1. Dailami, Mansoor & Masson, Paul R. & Padou, Jean Jose, 2008. "Global monetary conditions versus country-specific factors in the determination of emerging market debt spreads," Journal of International Money and Finance, Elsevier, Elsevier, vol. 27(8), pages 1325-1336, December.
  2. Ken Miyajima & Madhusudan Mohanty & Tracy Chan, 2012. "Emerging market local currency bonds: diversification and stability," BIS Working Papers 391, Bank for International Settlements.
  3. Domenico Giannone & Michele Lenza, 2010. "The Feldstein-Horioka Fact," NBER Chapters, National Bureau of Economic Research, Inc, in: NBER International Seminar on Macroeconomics 2009, pages 103-117 National Bureau of Economic Research, Inc.
  4. M. Hashem Pesaran, 2004. "Estimation and Inference in Large Heterogeneous Panels with a Multifactor Error Structure," CESifo Working Paper Series 1331, CESifo Group Munich.
  5. Sebastian Edwards, 1983. "LDC's Foreign Borrowing and Default Risk: An Empirical Investigation," NBER Working Papers 1172, National Bureau of Economic Research, Inc.
  6. Gabriela Dobrescu & Iva Petrova & Nazim Belhocine & Emanuele Baldacci, 2011. "Assessing Fiscal Stress," IMF Working Papers 11/100, International Monetary Fund.
  7. Jaramillo, Laura & Weber, Anke, 2013. "Bond yields in emerging economies: It matters what state you are in," Emerging Markets Review, Elsevier, Elsevier, vol. 17(C), pages 169-185.
  8. Peter Rowland & José Luis Torres, . "Determinants of Spread and Creditworthiness for Emerging Market Sovereign Debt:A Panel Data Study," Borradores de Economia 295, Banco de la Republica de Colombia.
  9. Thomas Laubach, 2009. "New Evidence on the Interest Rate Effects of Budget Deficits and Debt," Journal of the European Economic Association, MIT Press, MIT Press, vol. 7(4), pages 858-885, 06.
  10. Anke Weber, 2012. "Stock-Flow Adjustments and Fiscal Transparency," IMF Working Papers 12/39, International Monetary Fund.
  11. John D. Burger & Francis E. Warnock & Veronica Cacdac Warnock, 2010. "Emerging Local Currency Bond Markets," NBER Working Papers 16249, National Bureau of Economic Research, Inc.
  12. Dubravko Mihaljek & Michela Scatigna & Agustin Villar, 2002. "Recent trends in bond markets - The development of bond markets in emerging economies," BIS Papers chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), The development of bond markets in emerging economies, volume 11, pages 13-41 Bank for International Settlements.
  13. Edwards, Sebastian, 1984. "LDC Foreign Borrowing and Default Risk: An Empirical Investigation, 1976-80," American Economic Review, American Economic Association, American Economic Association, vol. 74(4), pages 726-34, September.
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