Emerging markets' spreads and global financial conditions
In this article, we analyze how much of the reduction in emerging markets' spreads can be ascribed to specific factors--linked to the improvement in a given country's fundamentals, rather than to common factors--linked to global liquidity conditions and agents' risk aversion. By means of factor analysis, we find that a single common factor is able to explain a large part of the co-variation in emerging market economies' (EMEs) spreads observed in the last 4 years; in turn, this common factor can be traced back mainly to financial market volatility. Due to the particularly benign global financial conditions of recent years, spreads seem to have declined to below the levels warranted by improved fundamentals. As a consequence, EMEs do remain vulnerable to sudden shifts in financial market conditions.
Volume (Year): 19 (2009)
Issue (Month): 2 (April)
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/intfin|
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.:
- Olcay Yucel Culha & Fatih Ozatay & Gulbin Sahinbeyoglu, 2006. "The Determinants of Sovereign Spreads in Emerging Markets," Working Papers 0604, Research and Monetary Policy Department, Central Bank of the Republic of Turkey.
- Eichengreen, Barry & Mody, Ashoka, 1998. "Interest Rates in the North and Capital Flows to the South: Is There a Missing Link?," International Finance, Wiley Blackwell, vol. 1(1), pages 35-57, October.
- 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.
- Peter C. B. Phillips & Bruce E. Hansen, 1990. "Statistical Inference in Instrumental Variables Regression with I(1) Processes," Review of Economic Studies, Oxford University Press, vol. 57(1), pages 99-125.
- Etienne B Yehoue & Gilles J. DufrÃ©not, 2005. "Real Exchange Rate Misalignment; A Panel Co-Integration and Common Factor Analysis," IMF Working Papers 05/164, International Monetary Fund.
- Alicia García-Herrero & Álvaro Ortiz, 2005.
"The role of global risk aversion in explaining Latin American sovereign spreads,"
0505, Banco de España;Working Papers Homepage.
- Alicia Garcia Herrero & Alvaro Ortiz, 2005. "The Role Of Global Risk Aversion In Explaining Latin American Sovereign Spreads," International Finance 0503005, EconWPA.
- Alicia Garcia Herrero & Alvaro Ortiz, 2004. "The Role Of Global Risk Aversion In Explaining Latin American Sovereign Spreads," International Finance 0408001, EconWPA.
- Martín González-Rozada & EduardoLevy Yeyati, 2008.
"Global Factors and Emerging Market Spreads,"
Royal Economic Society, vol. 118(533), pages 1917-1936, November.
- Martín González Rozada & Eduardo Levy Yeyati, 2006. "Global Factors and Emerging Market Spreads," IDB Publications (Working Papers) 6703, Inter-American Development Bank.
- Martín González Rozada & Eduardo Levy Yeyati, 2006. "Global Factors and Emerging Market Spreads," Research Department Publications 4445, Inter-American Development Bank, Research Department.
- Eduardo Levy Yeyati & Martín González Rozada, 2005. "Global Factors and Emerging Market Spreads," Business School Working Papers globalfactorsspreads, Universidad Torcuato Di Tella.
- Ciarlone, Alessio & Trebeschi, Giorgio, 2005. "Designing an early warning system for debt crises," Emerging Markets Review, Elsevier, vol. 6(4), pages 376-395, December.
- Dooley, Michael & Fernandez-Arias, Eduardo & Kletzer, Kenneth, 1996.
"Is the Debt Crisis History? Recent Private Capital Inflows to Developing Countries,"
World Bank Economic Review,
World Bank Group, vol. 10(1), pages 27-50, January.
- Dooley, Michael & Fernandez-Arias, Eduardo & Kletzer, Kenneth & DEC, 1994. "Is the debt crisis history? Recent private capital inflows to developing countries," Policy Research Working Paper Series 1327, The World Bank.
- 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.
- Patrick McGuire & Martijn A Schrijvers, 2003. "Common factors in emerging market spreads," BIS Quarterly Review, Bank for International Settlements, December.
- Gianluigi Ferrucci, 2003. "Empirical determinants of emerging market economies' sovereign bond spreads," Bank of England working papers 205, Bank of England.
When requesting a correction, please mention this item's handle: RePEc:eee:intfin:v:19:y:2009:i:2:p:222-239. 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: (Shamier, Wendy)
If references are entirely missing, you can add them using this form.