How Does U.S. Monetary Policy Influence Sovereign Spreads in Emerging Markets?

By Vivek B. Arora, M. Cerisola. International Monetary Fund Staff Papers, 2001

193 citations recorded by the source corpus.

This paper quantifies the impact of changes in U.S. monetary policy on sovereign bond spreads in emerging market countries. Specifically, the paper explores empirically how country risk, as proxied by sovereign bond spreads, is influenced by U.S. monetary policy, country-specific fundamentals, and conditions in global capital markets. While country-specific fundamentals are important in explaining fluctuations in country risk, the stance and predictability of U.S. monetary policy are also important for stabilizing capital flows and capital market conditions in emerging markets.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/1c4394d39ece7f744ae830850de24a2d8ae6ca90

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Citations in the corpus

Yield spreads on EMU government bonds (2003, background): “Our choice of proxies is also consistent with the evidence produced by Arora and Cerisola (2001), who document that tightening of US monetary policy and increasing uncertainty on the future stance significantly widens bond spreads of emerging markets. The dependence of yield differentials on proxies”
Default risk and risk averse international investors (2013, methodology): “This dynamic problem can be represented recursively by the Bellman Equation V L (s) = max θ, θ v ( c ) + EβLV ( s ) (4)”
How Does Liquidity Affect Government Bond Yields? (2009, unknown): “Hence (4) must hold with equality,7 implying:”
Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt (2010, unknown): “…(2008) find that the VIX is statistically significant in explaining CDS spreads of Mexico, Turkey, and Korea.13 The finding of a positive coefficient on the 10-year U.S. Treasury yield is consistent with the findings of Arora and Cerisola (2001) and Dailami, Masson, and Padou (2005), among others.”
Emerging Markets Spreads and Global Financial Conditions (2009, background): “…rates in advanced economies (mainly US), as a measure of global liquidity conditions (Eichengreen and Mody, 1998a and 1998b; Kamin and Kleist, 1999; Arora and Cerisola, 2001; Ferrucci, 2003; Garcia-Herrero and Ortiz, 2005; Rozada and Levy Yeyati, 2005; Hoggarth and Yang, 2006); their volatility,…”
Is it (Still) Mostly Fiscal? Determinants of Sovereign Spreads in Emerging Markets (2008, background): “…conditions: these variables account for the common factors influencing all emerging markets at the same time (McGuire and Schrijvers, 2003) and comprise: (i) US policy interest rate (Arora and Cerisola, 2001), and (ii) VIX stockmarket volatility index (Ozatay, Ozmen, and Sahinbeyoglu, 2007).”
Determinants of sovereign yield spreads in the Eurozone: A Bayesian approach (2012, background): “Arora and Cerisola (2001) perform individual regressions for time series of secondary market spreads of observed countries, whereas Cantor and Packer (1996) consider cross-section data.”
Monetary Policy in Emerging Markets (2010, background): “145 Arora and Cerisola (2001); Borensztein, Zettelmeyer, and Philippon (2001); and Frankel and Okongwu (1996) are among those finding significant effects of U.”