The sovereign spread in Asian emerging economies: The significance of external versus internal factors
This paper investigates the dynamic relations between external factors, domestic macroeconomic factors with sovereign spreads, debt to GDP ratio, etc. in Asian emerging countries. First, we develop a theoretical model that determines the equilibrium debt level, probability of default and sovereign spread and draw empirical implications. We then employ a Structural Vector Autoregression (SVAR) model to investigate empirically how the spread of sovereign debt is influenced over time by both external and domestic factors. The empirical results show that variations in sovereign spreads are mainly driven by external shocks, with the term structure of US interest rate and the global risk aversion having the most important role. The findings also indicate that shocks from the US have a direct effect on sovereign spread and an indirect effect via domestic macroeconomic fundamentals. Finally, the evidence produced validates the presence of some response patterns of sovereign spread to the external shocks.
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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.:
- Krugman, Paul, 1988.
"Financing vs. forgiving a debt overhang,"
Journal of Development Economics,
Elsevier, vol. 29(3), pages 253-268, November.
- Brenda Gonzalez-Hermosillo & Vance Martin & Mardi Dungey & Renee Fry, 2003. "Characterizing Global Investors' Risk Appetite for Emerging Market Debt During Financial Crises," IMF Working Papers 03/251, International Monetary Fund.
- Andrea Fracasso, 2006. "The role of foreign and domestic factors in the evolution of the Brazilian EMBI spread and debt dynamics," IHEID Working Papers 22-2007, Economics Section, The Graduate Institute of International Studies, revised Jul 2007.
- Cover, James P. & Mallick, Sushanta K., 2012. "Identifying sources of macroeconomic and exchange rate fluctuations in the UK," Journal of International Money and Finance, Elsevier, vol. 31(6), pages 1627-1648.
- Martin Uribe & Vivian Z. Yue, 2004.
"Country spreads and emerging countries: who drives whom?,"
Federal Reserve Bank of San Francisco, issue Jun.
- Uribe, Martin & Yue, Vivian Z., 2006. "Country spreads and emerging countries: Who drives whom?," Journal of International Economics, Elsevier, vol. 69(1), pages 6-36, June.
- Martin Uribe & Vivian Z. Yue, 2003. "Country Spreads and Emerging Countries: Who Drives Whom?," NBER Working Papers 10018, National Bureau of Economic Research, Inc.
- Sebastian Edwards, 1983. "LDC's Foreign Borrowing and Default Risk: An Empirical Investigation," NBER Working Papers 1172, National Bureau of Economic Research, Inc.
- Diaz Weigel, Diana & Gemmill, Gordon, 2006. "What drives credit risk in emerging markets? The roles of country fundamentals and market co-movements," Journal of International Money and Finance, Elsevier, vol. 25(3), pages 476-502, April.
- Hong G. Min, 1998. "Determinants of emerging market bond spread : do economic fundamentals matter?," Policy Research Working Paper Series 1899, The World Bank.
- Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
- Hao Zhou, 2010. "Variance risk premia, asset predictability puzzles, and macroeconomic uncertainty," Finance and Economics Discussion Series 2010-14, Board of Governors of the Federal Reserve System (U.S.).
- Granville, Brigitte & Mallick, Sushanta & Zeng, Ning, 2011. "Chinese exchange rate and price effects on G3 import prices," Journal of Asian Economics, Elsevier, vol. 22(6), pages 427-440.
- Edwards, Sebastian, 1984. "LDC Foreign Borrowing and Default Risk: An Empirical Investigation, 1976-80," American Economic Review, American Economic Association, vol. 74(4), pages 726-34, September.
- Maurice Obstfeld & Kenneth S. Rogoff, 1996. "Foundations of International Macroeconomics," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262150476, June.
When requesting a correction, please mention this item's handle: RePEc:eee:ecmode:v:36:y:2014:i:c:p:566-576. 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: (Zhang, Lei)
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.