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Sovereign Spreads and Contagion Risks in Asia

Author/Editor: Caceres, Carlos | Unsal, D. Filiz
Authorized for Distribution: June 1, 2011
Electronic Access: Free Full Text (PDF file size is 1,826KB)
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Disclaimer: This Working Paper should not be reported as representing the views of the IMF. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

Summary: This paper explores how much of the movements in the sovereign spreads of Asian economies over the course of the global financial crisis has reflected shifts in (i) global risk aversion; (ii) country-specific risks, directly from worsening fundamentals, and indirectly from spillovers originating in other sovereigns and the uncertainty surrounding exchange rates. Earlier in the crisis, the increase in market-implied contagion led to higher Asian sovereign bond yield spreads over swaps. But, after the crisis, Asia’s sovereign spreads normalized, despite the debt crisis in the euro area, reflecting a fall in both exchange rate and spillover risks.
 
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Series: Working Paper No. 11/134
Subject(s): Asia | Bond markets | Bonds | Exchange rates | Financial crisis | Financial risk | Global Financial Crisis 2008-2009 | Sovereign debt
Author's keyword(s): Sovereign spreads; contagion; exchange rates; market price of risk; fiscal policy.
 
English  
    Published:   June 1, 2011        
            Format:   Paper
    Stock No:   WPIEA2011134   Pages:   25
    Price:   US$18.00 (Academic Rate: US$18.00 )
       
     
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