Global Factors and Emerging Market Spreads

By Martín González-Rozada, E. L. Yeyati. 2006

351 citations recorded by the source corpus.

This paper shows that a large fraction of the variability of emerging market bond spreads is explained by the evolution of global factors such as risk appetite (as reflected in the spread of high yield corporate bonds in developed markets), global liquidity (measured by the international interest rates) and contagion (from systemic events like the Russian default). This link has remained relatively stable over the history of the emerging market class, is robust to the inclusion of country-specific factors, and helps provide accurate long-run predictions. Overall, the results highlight the critical role played by exogenous factors in the evolution of the borrowing cost faced by emerging economies.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/c3edc263d154d669016ef620668b83b2a3daf726

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Citations in the corpus

Is it (Still) Mostly Fiscal? Determinants of Sovereign Spreads in Emerging Markets (2008, background): “Gonzales-Rosada and Levy-Yeyati (2006) highlight the importance of contagion from systemic events, such as the 1998 Russia crisis, for credit spreads.”
Trilemmas and trade-offs: living with financial globalisation (2015, background): “Goodhart and Turner (2014) summarise a widely held view of the evidence: Long-term interest rates are more correlated across countries than short-term rates.”
Fiscal Rules and the Sovereign Default Premium (2022, neutral): “Halac and Yared (2015) extend their model of governments’ deficit bias and fiscal rules (Halac and Yared, 2014) to a multicountry setting in which a supranational fiscal rule affects the global interest rate.”
Political risk spreads (2014, neutral): “1Graham and Harvey (2001) show that for a large sample of U.”
Debt Dilution and Sovereign Default Risk (2011, neutral): “Following Hatchondo et al. (2010), we solve the model numerically using value function iteration and interpolation.(11) Table 1 presents the calibration we use, which target similar statistics to the ones targeted in other studies of sovereign default. For the borrower, we assume a coefficient of re”