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On Corporate Borrowing, Credit Spreads and Economic Activity in Emerging Economies: An Empirical Investigation

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  • Caballero, Julián
  • Fernandez, Andres
  • Park, Jongho

Abstract

This paper studies the influence of external financial factors on economic activity in emerging economies (EMEs) motivated by a considerable increase in foreign financing by the corporate sector in EMEs since the early 2000s, mainly in the form of bond issuance. A quarterly external financial indicator for several EMEs is built using bond-level data on spreads of corporate bonds issued in foreign capital markets, and its relationship with economic activity is examined. Results show that the indicator has considerable predictive power on future economic activity. Furthermore, an identified adverse shock to the financial indicator generates a large and protracted fall in real output growth, and about a third of its forecast error variance is associated with this shock. These findings are robust to controlling for possible spillovers from sovereign to corporate risk, among other considerations.

Suggested Citation

  • Caballero, Julián & Fernandez, Andres & Park, Jongho, 2016. "On Corporate Borrowing, Credit Spreads and Economic Activity in Emerging Economies: An Empirical Investigation," IDB Publications (Working Papers) 7793, Inter-American Development Bank.
  • Handle: RePEc:idb:brikps:7793
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    Cited by:

    1. Dave, Chetan & Ghate, Chetan & Gopalakrishnan, Pawan & Tarafdar, Suchismita, 2018. "Fiscal Austerity in Emerging Market Economies," MPRA Paper 87086, University Library of Munich, Germany.
    2. Chang, Roberto & Fernández, Andrés & Gulan, Adam, 2017. "Bond finance, bank credit, and aggregate fluctuations in an open economy," Journal of Monetary Economics, Elsevier, vol. 85(C), pages 90-109.
    3. repec:eee:inecon:v:109:y:2017:i:c:p:43-67 is not listed on IDEAS
    4. repec:eee:inecon:v:117:y:2019:i:c:p:79-90 is not listed on IDEAS
    5. repec:wsi:jicepx:v:08:y:2017:i:03:n:s179399331750017x is not listed on IDEAS
    6. repec:eee:inecon:v:116:y:2019:i:c:p:1-32 is not listed on IDEAS

    More about this item

    Keywords

    credit spreads; external financial conditions; corporate borrowing;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F37 - International Economics - - International Finance - - - International Finance Forecasting and Simulation: Models and Applications
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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