Spatial Spillovers in Emerging Market Spreads

Author/Editor: Baldacci, Emanuele ; Dell'Erba, Salvatore ; Poghosyan, Tigran
Publication Date: September 01, 2011
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Summary: We use novel spatial econometrics techniques to explore spillovers in the sovereign bond market for 24 emerging economies during 1995-2010. The paper extends the previous literature focusing on spillover effects from advanced to emerging economies by analyzing transmission of shocks across emerging markets. After controlling for the impact of global factors, we find strong evidence of spillovers from both sovereign spreads and macroeconomic fundamentals in neighboring emerging economies. In addition to the geographical proximity, the channels of spatial transmission include trade and financial linkages. The results of the paper highlight the importance of accounting not only for spillovers from advanced economies to emerging markets, but also across emerging markets when analyzing sovereign spreads.
Series: Working Paper No. 11/221
Subject(s): Bond markets | Bonds | Developed countries | Economic models | Emerging markets | External debt | Financial crisis | Global Financial Crisis 2008-2009 | Sovereign debt | Spillovers

Author's Keyword(s): sovereign spreads | emerging market | spillovers | spatial econometrics
Publication Date: September 01, 2011
Format: Paper
Stock No: WPIEA2011221 Pages: 28
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