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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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)|
|Additional Information:||© 2009 The authors|
|Uncontrolled Keywords:||real interest rates; default, sovereign debt, identification through heteroskedasticity|
|Library of Congress subject classification:||H Social Sciences > HB Economic Theory
E History America > E151 United States (General)
|Journal of Economic Literature Classification System:||F - International Economics > F3 - International Finance > F34 - International Lending and Debt Problems
G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets
|Sets:||Collections > Economists Online
Research centres and groups > Centre for Economic Performance (CEP)
|Identification Number:||No. 952|
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