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Do Local Currency Bond Markets Enhance Financial Stability?


  • Park, Donghyun

    () (Asian Development Bank)

  • Shin, Kwanho

    () (Korea University)

  • Tian, Shu

    () (Asian Development Bank)


It is widely believed that local currency bond markets (LCBMs) can promote financial stability in developing countries. For instance, they can help mitigate the currency and maturity mismatch that contributed to the outbreak of the Asian financial crisis of 1997–1998. In this paper, we empirically test such conventional wisdom on the stabilizing effect of LCBMs. To do so, we analyze and compare the financial vulnerability of developing countries during two episodes of financial stress—global financial crisis and taper tantrum. During the two episodes, we find a negative association between the growth of LCBMs and the degree of currency depreciation in emerging economies. Similar association is found of bank loans but not for the stock market.

Suggested Citation

  • Park, Donghyun & Shin, Kwanho & Tian, Shu, 2018. "Do Local Currency Bond Markets Enhance Financial Stability?," ADB Economics Working Paper Series 563, Asian Development Bank.
  • Handle: RePEc:ris:adbewp:0563

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    References listed on IDEAS

    1. repec:mes:emfitr:v:52:y:2016:i:4:p:886-903 is not listed on IDEAS
    2. Eswar S. Prasad, 2011. "Rebalancing Growth in Asia," International Finance, Wiley Blackwell, vol. 14(1), pages 27-66, April.
    3. repec:mes:emfitr:v:53:y:2017:i:12:p:2826-2844 is not listed on IDEAS
    4. Park, Donghyun & Ramayandi, Arief & Shin, Kwanho, 2014. "Capital Flows During Quantitative Easing and Aftermath: Experiences of Asian Countries," ADB Economics Working Paper Series 409, Asian Development Bank.
    5. Ethan Ilzetzki & Carmen M. Reinhart & Kenneth S. Rogoff, 2017. "Exchange Arrangements Entering the 21st Century: Which Anchor Will Hold?," NBER Working Papers 23134, National Bureau of Economic Research, Inc.
    6. Cyn-Young Park, 2017. "Developing Local Currency Bond Markets in Asia," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 53(12), pages 2826-2844, December.
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    More about this item


    Asian financial crisis; bonds; currency mismatch; developing countries; financial stability; local currency bond markets; maturity mismatch;

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F38 - International Economics - - International Finance - - - International Financial Policy: Financial Transactions Tax; Capital Controls
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F62 - International Economics - - Economic Impacts of Globalization - - - Macroeconomic Impacts

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