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Interest premium and external position: a time varying approach

Author

Listed:
  • Istvan Konya

    (Center of Economics and Regional Sciences – Institute of Economics, Hungarian Academy of Sciences and University of Pecs, and Central European University)

  • Franklin Maduko

    (Central European University, Economics Department)

Abstract

The paper reexamines the empirical relationship between external indebtedness and the interest premium on government bonds. We use a broad sample of countries between 1980-2017 that includes advanced, emerging and less-developed economies. We show that the relationship is strongly state-dependent, and it varies both with the international financial climate, and with the level of development. Moreover, while we find some evidence for non-linearity, this is mostly driven by turbulent periods. We carry out a number of robustness exercises, which highlight issues related to sample composition, the choice of the debt measure, and the definition of crisis events.

Suggested Citation

  • Istvan Konya & Franklin Maduko, 2018. "Interest premium and external position: a time varying approach," KRTK-KTI WORKING PAPERS 1829, Institute of Economics, Centre for Economic and Regional Studies.
    • Handle: RePEc:has:discpr:1829
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    References listed on IDEAS

    as
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    6. Comelli, Fabio, 2012. "Emerging market sovereign bond spreads: Estimation and back-testing," Emerging Markets Review, Elsevier, vol. 13(4), pages 598-625.
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    Keywords

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    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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