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US real interest rates and default risk in emerging economies

Foley-Fisher, Nathan and Guimaraes, Bernardo (2009) US real interest rates and default risk in emerging economies. CEP Discussion Paper, No. 952. Centre for Economic Performance, London School of Economics and Political Science, London, UK.

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Identification Number: No. 952

Abstract

We empirically analyse the appropriateness of indexing emerging market sovereign debt to US real interest rates. We find that policy-induced exogenous increases in US rates raise default risk in emerging market economies, as hypothesised in the theoretical literature. However, we also find evidence that omitted variables which simultaneously increase US real interest rates and reduce the risk of default dominate the hypothesised relationship. We can only conclude that it’s not a good idea to index emerging market bonds to US real interest rates.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/
Additional Information: © 2009 The authors
Subjects: H Social Sciences > HB Economic Theory
E History America > E151 United States (General)
Sets: Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
Series: Working Papers > CEP Discussion Papers
Date Deposited: 16 Jul 2010 15:11
Last Modified: 14 Nov 2012 10:19
URI: http://eprints.lse.ac.uk/id/eprint/28683

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