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Testing for Balance Sheet Effects in Emerging Market Countries

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Author Info
Uluc Aysun (University of Connecticut)

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Abstract

This paper tests the presence of balance sheets effects and analyzes the implications for exchange rate policies in emerging markets. The results reveal that the emerging market bond index (EMBI) is negatively related to the banks. foreign currency leverage, and that these banks. foreign currency exposures are relatively unhedged. Panel SVAR methods using EMBI instead of advanced country lending rates find, contrary to the literature, that the amplitude of output responses to foreign interest rate shocks are smaller under relatively fixed regimes. The findings are robust to the local projections method of obtaining impulse responses, using country specific and GARCH-SVAR models.

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Publisher Info
Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2006-28.

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Length: 35 pages
Date of creation: Aug 2006
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Handle: RePEc:uct:uconnp:2006-28

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Related research
Keywords: EMBI bank balance sheets leverage country risk premium exchange rates.

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Find related papers by JEL classification:
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
F31 - International Economics - - International Finance - - - Foreign Exchange
F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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