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Good-bye original sin, hello risk on-off, financial fragility, and crises?

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  • Aizenman, J.
  • Jinjarak, Y.
  • Park, D.
  • Zheng, H.

Abstract

We analyze the sovereign bond issuance data of eight major emerging markets (EMs) - Brazil, China, India, Indonesia, Mexico, Russia, South Africa and Turkey from 1970 to 2018. Our analysis suggests that (i) EM local currency bonds tend to be smaller in size, shorter in maturity, or lower in coupon rate than foreign currency bonds; (ii) EMs are more likely to issue local-currency sovereign bonds if their currencies appreciated before the global financial crisis of 2008 (GFC); (iii) inflation-targeting policy increases the likelihood of issuing local-currency debt before GFC but not after; and (iv) EMs that offer higher sovereign yields are more likely to issue local-currency bonds after GFC. Future data will allow us to test and identify structural changes associated with the COVID-19 pandemic and its aftermath.

Suggested Citation

  • Aizenman, J. & Jinjarak, Y. & Park, D. & Zheng, H., 2021. "Good-bye original sin, hello risk on-off, financial fragility, and crises?," Journal of International Money and Finance, Elsevier, vol. 117(C).
    • Handle: RePEc:eee:jimfin:v:117:y:2021:i:c:s0261560621000930
    DOI: 10.1016/j.jimonfin.2021.102442
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    Cited by:

    1. Hale, Galina & Juvenal, Luciana, 2023. "External Balance Sheets and the COVID-19 Crisis," Journal of Banking & Finance, Elsevier, vol. 147(C).
    2. Geyikçi, Utku Bora & Özyıldırım, Süheyla, 2023. "Deviations from covered interest parity in the emerging markets after the global financial crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 85(C).
    3. Agustín Bénétrix & Beren Demirölmez & Martin Schmitz, 2024. "The Shock Absorbing Role of Cross-border Investments: Net Positions Versus Currency Composition," Open Economies Review, Springer, vol. 35(2), pages 363-394, April.
    4. Zheng, Huanhuan, 2023. "Original sin redux and deviations from covered interest parity," Journal of International Money and Finance, Elsevier, vol. 139(C).
    5. Janus, Jakub, 2021. "The COVID-19 shock and long-term interest rates in emerging market economies," Finance Research Letters, Elsevier, vol. 43(C).
    6. Janus, Jakub, 2022. "Cross-border flights to safe assets in bond markets: evidence from emerging market economies," MPRA Paper 113875, University Library of Munich, Germany.
    7. Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2023. "Yet it Endures: The Persistence of Original Sin," Open Economies Review, Springer, vol. 34(1), pages 1-42, February.
    8. Janus, Jakub, 2023. "Flights to safe assets in bond markets: Evidence from emerging market economies," Journal of International Money and Finance, Elsevier, vol. 139(C).
    9. Maeng, F. S., 2024. "Default, Inflation Expectations, and the Currency Denomination of Sovereign Bonds," Cambridge Working Papers in Economics 2438, Faculty of Economics, University of Cambridge.

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    More about this item

    Keywords

    Original sin; Emerging market; Sovereign bond; Local-currency bond; Financial crisis;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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