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US real interest rates and default risk in emerging economies

  • Foley-Fisher, Nathan
  • Guimarães, Bernardo

This paper empirically investigates the impact of changes in US real interest rates on sovereign default risk in emerging economies using the method of identification through heteroskedasticity. Policy-induced increases in US interest rates starkly raise default risk in emerging market economies. However, the overall correlation between US real interest rates and the risk of default is negative, demonstrating that the effects of other variables dominate the anterior relationship

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File URL: http://bibliotecadigital.fgv.br/dspace/bitstream/10438/10007/1/TD+295+-+C-Micro+13+-+Nathan+Foley-Fisher+e+Bernardo+Guimaraes.pdf
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Paper provided by Escola de Economia de São Paulo, Getulio Vargas Foundation (Brazil) in its series Textos para discussão with number 295.

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Date of creation: 12 Sep 2012
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Handle: RePEc:fgv:eesptd:295
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  1. Carlo Rosa, 2011. "The Validity of the Event‐study Approach: Evidence from the Impact of the Fed's Monetary Policy on US and Foreign Asset Prices," Economica, London School of Economics and Political Science, vol. 78(311), pages 429-439, 07.
  2. Guimarães, Bernardo, 2007. "Optimal external debt and default," CEPR Discussion Papers 6035, C.E.P.R. Discussion Papers.
  3. Roberto Rigobon & Brian Sack, 2002. "The impact of monetary policy on asset prices," Finance and Economics Discussion Series 2002-4, Board of Governors of the Federal Reserve System (U.S.).
  4. Martin Uribe & Vivian Z. Yue, 2003. "Country Spreads and Emerging Countries: Who Drives Whom?," NBER Working Papers 10018, National Bureau of Economic Research, Inc.
  5. Francis A. Longstaff & Jun Pan & Lasse H. Pedersen & Kenneth J. Singleton, 2011. "How Sovereign Is Sovereign Credit Risk?," American Economic Journal: Macroeconomics, American Economic Association, vol. 3(2), pages 75-103, April.
  6. Roberto Rigobon, 2003. "Identification Through Heteroskedasticity," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 777-792, November.
  7. Pablo A. Neumeyer & Fabrizio Perri, 2004. "Business Cycles in Emerging Economies: The Role of Interest Rates," NBER Working Papers 10387, National Bureau of Economic Research, Inc.
  8. Bernardo Guimaraes, 2011. "Sovereign default: which shocks matter?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 14(4), pages 553-576, October.
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