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Emerging Markets Spreads and Global Financial Conditions

Author

Listed:
  • Alessio Ciarlone

    () (Bank of Italy, International Relations)

  • Paolo Piselli

    () (Bank of Italy, International Relations)

  • Giorgio Trebeschi

    () (Bank of Italy, International Relations)

Abstract

In this article, we analyse how much of the reduction in emerging markets spreads can be ascribed to specific factors - linked to the improvement in the 'fundamentals' of a given country - rather than to common factors - linked to global liquidity conditions and agents� degree of 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 spreads observed in the last four years; on its turn, this common factor might be traced back mainly to financial markets volatility. Due to the particularly benign global financial conditions in recent years, spreads seem to have declined to levels lower than those warranted by improved fundamentals. As a consequence, EMEs do remain vulnerable to sudden shift in financial market conditions.

Suggested Citation

  • Alessio Ciarlone & Paolo Piselli & Giorgio Trebeschi, 2007. "Emerging Markets Spreads and Global Financial Conditions," Temi di discussione (Economic working papers) 637, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_637_07
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    emerging markets; spreads; factor analysis;

    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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