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Sovereign debt risk in emerging market economies: Does inflation targeting adoption make any difference?

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  • Balima, Wenéyam Hippolyte
  • Combes, Jean-Louis
  • Minea, Alexandru

Abstract

Based on a sample of 38 emerging economies, we find that inflation targeting (IT) adoption improves sovereign debt risk. Next, we show that this favorable effect is sensitive to several structural characteristics, and to the considered time span. Finally, the measure of sovereign risk (sovereign debt ratings or government bond yield spreads) and the IT form (full-fledged or partial) equally influence the effect of IT adoption on sovereign debt risk. Thus, our paper provides valuable insights regarding IT implementation as a device for improving emerging market economies' access to international financial markets.

Suggested Citation

  • Balima, Wenéyam Hippolyte & Combes, Jean-Louis & Minea, Alexandru, 2017. "Sovereign debt risk in emerging market economies: Does inflation targeting adoption make any difference?," Journal of International Money and Finance, Elsevier, vol. 70(C), pages 360-377.
    • Handle: RePEc:eee:jimfin:v:70:y:2017:i:c:p:360-377
    DOI: 10.1016/j.jimonfin.2016.10.005
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    More about this item

    Keywords

    Inflation targeting; Sovereign debt ratings; Government bond yield spreads; Emerging markets; Propensity scores matching;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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