Emerging market sovereign spreads, global financial conditions and US macroeconomic news

Date

2009-03-01

Author

Oezatay, Fatih
Özmen, Erdal
Sahinbeyogu, Guelbin

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This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.

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We investigate the impact of global financial conditions. U.S. macroeconomic news and domestic fundamentals on the evolution of EMBI spreads for a panel of 18 emerging market (EM) countries using daily data. To this end, we consider not only the conventional panel cointegration procedures but also the recent common correlated effects method to tackle cross-section dependence that may stem from common global shocks such as contagion. The results suggest that the long-run evolution of EMBI spreads depends on global financial conditions, crises contagion and domestic fundamentals proxied by sovereign ratings. The results from panel equilibrium correction models suggest that EMBI spreads respond substantially also to U.S. macroeconomic news and changes in the Federal Reserve's target interest rates. The magnitude and the sign of the effect of the U.S. news, however, crucially depend on the state of the U.S. economy, such as the presence of inflation dominance.

Subject Keywords

Economics and Econometrics

URI

https://hdl.handle.net/11511/48304

Collections

Department of Economics, Article