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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
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    References listed on IDEAS

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    Cited by:

    1. Montes, Gabriel Caldas & Nicolay, Rodolfo & Pereira, Flavio, 2022. "Does fiscal sentiment matter for sovereign risk?," The Quarterly Review of Economics and Finance, Elsevier, vol. 86(C), pages 18-30.
    2. Juan Carlos Cuestas & Luis A. Gil-Alana & María Malmierca, 2022. "Credit-to-GDP ratios – non-linear trends and persistence: evidence from 44 OECD economies," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 50(3), pages 448-463, March.
    3. Charfeddine, Lanouar & Khediri, Karim Ben & Aye, Goodness C. & Gupta, Rangan, 2018. "Time-varying efficiency of developed and emerging bond markets: Evidence from long-spans of historical data," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 505(C), pages 632-647.
    4. Francisco López-Herrera & Domingo Rodríguez Benavides & César Gurrola Ríos, 2019. "Spillovers entre el S&Poor500 y los principales EMBIG latinoamericanos," Remef - Revista Mexicana de Economía y Finanzas Nueva Época REMEF (The Mexican Journal of Economics and Finance), Instituto Mexicano de Ejecutivos de Finanzas, IMEF, vol. 14(PNEA), pages 527-540, Agosto 20.

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    More about this item

    Keywords

    Emerging markets; EMBI; fractional integration; non-linearities;
    All these keywords.

    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

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