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Global Factors and Emerging Market Spreads

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  • Martín González‐Rozada
  • Eduardo Levy Yeyati

Abstract

This article shows that a large fraction of the time variability of emerging market bond spreads is explained by the evolution of global factors such as risk appetite, global liquidity and contagion from systemic events such as the Russian default. This link is robust to the inclusion of country‐specific factors and helps to provide accurate long‐run predictions. By contrast, changes in credit ratings appear to lag spread movements and elicit little additional effect on the pricing of emerging market debt. The results highlight the critical role played by exogenous factors in the evolution of borrowing costs faced by emerging economies.

Suggested Citation

  • Martín González‐Rozada & Eduardo Levy Yeyati, 2008. "Global Factors and Emerging Market Spreads," Economic Journal, Royal Economic Society, vol. 118(533), pages 1917-1936, November.
  • Handle: RePEc:wly:econjl:v:118:y:2008:i:533:p:1917-1936
    DOI: 10.1111/j.1468-0297.2008.02196.x
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    1. Martín González-Rozada & EduardoLevy Yeyati, 2008. "Global Factors and Emerging Market Spreads," Economic Journal, Royal Economic Society, vol. 118(533), pages 1917-1936, November.
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