IDEAS home Printed from https://ideas.repec.org/p/diw/diwwpp/dp1524.html
   My bibliography  Save this paper

The EMBI in Latin America: Fractional Integration, Non-linearities and Breaks

Author

Listed:
  • Guglielmo Maria Caporale
  • Hector Carcel
  • Luis A. Gil-Alana

Abstract

This paper analyses the main statistical properties of the Emerging Market Bond Index (EMBI), namely long-range dependence or persistence, non-linearities, and structural breaks, in four Latin American countries (Argentina, Brazil, Mexico, Venezuela). For this purpose it uses a fractional integration framework and both parametric and semiparametric methods. The evidence based on the former is sensitive to the specification for the error terms, whilst the results from the latter are more conclusive in ruling out mean reversion. Further, non-linearities do not appear to be present. Both recursive and rolling window methods identify a number of breaks. Overall, the evidence of long-range dependence as well as breaks suggests that active policies might be necessary for achieving financial and economic stability in these countries.

Suggested Citation

  • Guglielmo Maria Caporale & Hector Carcel & Luis A. Gil-Alana, 2015. "The EMBI in Latin America: Fractional Integration, Non-linearities and Breaks," Discussion Papers of DIW Berlin 1524, DIW Berlin, German Institute for Economic Research.
  • Handle: RePEc:diw:diwwpp:dp1524
    as

    Download full text from publisher

    File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.520779.de/dp1524.pdf
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Sowell, Fallaw, 1992. "Maximum likelihood estimation of stationary univariate fractionally integrated time series models," Journal of Econometrics, Elsevier, vol. 53(1-3), pages 165-188.
    2. Hernando Vargas & Andrés Gonzalez & Ignacio Lozano, 2012. "Macroeconomic effects of structural fiscal policy changes in Colombia," BIS Papers chapters,in: Bank for International Settlements (ed.), Fiscal policy, public debt and monetary policy in emerging market economies, volume 67, pages 119-160 Bank for International Settlements.
    3. Andrea Fracasso, 2006. "The role of foreign and domestic factors in the evolution of the Brazilian EMBI spread and debt dynamics," IHEID Working Papers 22-2007, Economics Section, The Graduate Institute of International Studies, revised Jul 2007.
    4. Eduardo A. Cavallo & Patricio Valenzuela, 2010. "The determinants of corporate risk in emerging markets: an option-adjusted spread analysis," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 15(1), pages 59-74.
    5. Miguel A. Segoviano Basurto & Carlos Caceres & Vincenzo Guzzo, 2010. "Sovereign Spreads; Global Risk Aversion, Contagion or Fundamentals?," IMF Working Papers 10/120, International Monetary Fund.
    6. Bierens, Herman J., 1997. "Testing the unit root with drift hypothesis against nonlinear trend stationarity, with an application to the US price level and interest rate," Journal of Econometrics, Elsevier, vol. 81(1), pages 29-64, November.
    7. Luis A. Gil-Alana, 2008. "Fractional integration and structural breaks at unknown periods of time," Journal of Time Series Analysis, Wiley Blackwell, vol. 29(1), pages 163-185, January.
    8. Abadir, Karim M. & Distaso, Walter & Giraitis, Liudas, 2007. "Nonstationarity-extended local Whittle estimation," Journal of Econometrics, Elsevier, vol. 141(2), pages 1353-1384, December.
    9. Valentín Délano & Jorge Selaive, 2005. "Spreads Soberanos: Una Aproximación Factorial," Working Papers Central Bank of Chile 309, Central Bank of Chile.
    10. Francisco López Herrera & Francisco Venegas Martínez & César Gurrola Ríos, 2013. "EMBI+México y su relación dinámica con otros factores de riesgo sistemático: 1997-2011," Estudios Económicos, El Colegio de México, Centro de Estudios Económicos, vol. 28(2), pages 193-216.
    11. Borensztein, Eduardo & Cowan, Kevin & Valenzuela, Patricio, 2013. "Sovereign ceilings “lite”? The impact of sovereign ratings on corporate ratings," Journal of Banking & Finance, Elsevier, vol. 37(11), pages 4014-4024.
    12. Jushan Bai & Pierre Perron, 2003. "Computation and analysis of multiple structural change models," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 18(1), pages 1-22.
    13. Julio Nogués & Martín Grandes, 2001. "COUNTRY RISK: Economic Policy, Contagion Effect or Political noise?," Journal of Applied Economics, Universidad del CEMA, vol. 4, pages 125-162, May.
    14. Fátima Irina VILLALBA PADILLA & Miguel FLORES-ORTEGA, 2013. "Forecasting the variance and return of Mexican financial series with symmetric GARCH models," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania - AGER, vol. 0(3(580)), pages 61-82, March.
    15. repec:agr:journl:v:3(580):y:2013:i:3(580):p:61-82 is not listed on IDEAS
    16. Lorena Mari del Cristo & Marta Gómez-Puig, 2014. "Dollarization and the relationship between EMBI and fundamentals in Latin American countries," Working Papers 2014-02, Universitat de Barcelona, UB Riskcenter.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Emerging markets; EMBI; fractional integration; non-linearities;

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:diw:diwwpp:dp1524. 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: (Bibliothek). General contact details of provider: http://edirc.repec.org/data/diwbede.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.