## _wp12198 - 1. Descriptive Statistics

## Source details

**Canonical URL:** [_wp12198 - 1. Descriptive Statistics](https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12198.pdf)

## Other formats

- [Markdown version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12198.pdf.md)
- [Structured JSON version](/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12198.pdf.json)

---

### I. Introduction and Objective
- Objective: investigate how the extent to which fiscal variables affect domestic bond yields in emerging economies depends on the level of global risk aversion, proxied by the VIX.
- Methodological contributions:
  - Novel high-frequency panel dataset for 26 emerging economies between 2005 and 2011 with monthly observations for long-term domestic bond yields and market expectations of fiscal variables (deficit and debt-to-GDP ratio), inflation, and real GDP.
  - Use of a panel threshold model to allow explanatory variables to have differing regression slopes depending on whether global risk aversion is above or below an endogenously chosen threshold.

### II. Principal Empirical Findings (Overview)
- Regime-dependent determinants:
  - Low global risk aversion: domestic bond yields are mostly influenced by inflation and real GDP growth expectations.
  - High global risk aversion: expectations regarding fiscal deficits and government debt become significant determinants of domestic bond yields.
- Quantified effects in high risk-aversion regime:
  - Every additional percentage point in expected debt-to-GDP raises domestic bond yields by 6 basis points (0.06).
  - Every percentage point expected worsening in the overall fiscal balance-to-GDP ratio raises yields by 30 basis points (−0.31 coefficient interpreted as a 1 percentage point deterioration raising yields by 30 basis points).

### III. Background and Literature Context
- Theoretical references: Ricardian vs. non-Ricardian responses; international capital mobility and risk premia.
- Empirical context:
  - Advanced-economy estimates of a one percent of GDP change in the fiscal deficit range from 10 basis points to 60 basis points (Laubach, 2009).
  - Emerging-market findings cited: Peiris (2010) (one percent increase in the fiscal balance-to-GDP ratio lowers long-term bond yields by about 20 basis points); Baldacci and Kumar (2010) (higher fiscal deficits and public debt raise long-term nominal bond yields).

### IV. Stylized Facts and Market Evolution
- Market composition and scale:
  - In 2011, domestic debt represented close to 85 percent of general government debt on average, compared to 67 percent in 2000.
  - Government securities reached 27 percent of GDP on average and represented the bulk of new issuances.
  - Assets of dedicated emerging market fixed-income funds exceeded US$180 billion at end-2011.
- Yield behavior:
  - Sovereign domestic bond yields declined in early 2000s but showed considerable volatility for some countries; the financial crisis increased cross-country differentiation with some yields jumping to double digits.
  - Standard deviation across domestic bond yields increased with upward movements in the VIX.
- Fiscal fundamentals and yields:
  - Countries with higher overall balances tend to have lower domestic bond yields; countries with higher debt tend to have higher domestic bond yields.
- Data note: monthly one-year ahead expectations of fiscal variables are from Economist Intelligence Unit.

### V. Data, Descriptive Statistics, and Coverage
- Sample: unbalanced panel; monthly observations for 26 emerging economies between January 2005 and April 2011.
- Key data sources: Bloomberg, Haver, IFS, Economist Intelligence Unit (EIU), EPFR Global via Haver, MSCI via Haver, VIX via Bloomberg.
- Descriptive statistics (selected, exact values preserved):
  - Long-term domestic bond yield (percent): Mean 7.7, Median 7.3, Standard deviation 3.2, 10th percentile 4.0, 90th percentile 12.4.
  - Expected gross debt t+1 (percent of GDP): Mean 38.7, Median 40.6, Standard deviation 20.0, 10th percentile 10.1, 90th percentile 62.2.
  - Expected overall balance t+1 (percent of GDP): Mean -2.5, Median -2.5, Standard deviation 2.5, 10th percentile -5.9, 90th percentile 0.3.
  - Expected inflation rate t+1 (percent): Mean 5.8, Median 4.7, Standard deviation 4.9, 10th percentile 2.5, 90th percentile 9.3.
  - Expected real GDP growth rate t+1 (percent): Mean 4.7, Median 4.8, Standard deviation 2.1, 10th percentile 2.6, 90th percentile 7.2.
  - Domestic Treasury bill rate (percent): Mean 6.8, Median 6.6, Standard deviation 4.0, 10th percentile 2.2, 90th percentile 12.0.
  - Change in the stock market index (percent): Mean 22.5, Median 22.9, Standard deviation 40.5, 10th percentile -33.4, 90th percentile 69.3.
  - Foreign bond fund flows (percent of GDP): Mean 13.9, Median 3.9, Standard deviation 36.9, 10th percentile -13.6, 90th percentile 55.7.
- Coverage notes:
  - Dataset is unbalanced; some variables (e.g., expected gross debt) available only since 2007 for most countries.

### VI. Empirical Model Specification and Estimation Approach
- Baseline model:
  - Fixed effects panel model with robust standard errors.
  - Dependent variable: nominal long-term domestic bond yields.
  - Explanatory variables: market expectations of fiscal variables (public debt and fiscal deficit), real GDP growth, inflation, short-term nominal interest rate, U.S. long-term bond yield, bond fund flows into domestic bond markets, change in local stock market index.
  - Fixed effects control for time-invariant country characteristics.
- Nonlinearity and threshold approach:
  - Threshold variable: VIX (Chicago Board Options Exchange Volatility Index).
  - Methodology: Hansen (1996, 2000) panel threshold estimation; threshold estimated endogenously by minimizing sum of mean squared errors; Supremum Wald-test with bootstrap critical values used for significance.
  - Model allows separate regression slopes for regimes where VIX is above or below estimated threshold.
- Estimation diagnostics:
  - Hausman (1978) test rejects random effects in favor of fixed effects at the 1 percent level.
  - Cross-sectional dependence present (Pesaran CD test); CCEMG estimator yields similar results except debt expectation significance changes, but CCEMG may be ill-suited due to sample unbalancedness.

### VII. Estimation Results — Fixed Effects and Threshold Model
- Basic fixed effects regression (selected exact coefficient estimates; standard errors in parentheses):
  - Specification (1): 2007M1-2011M6, 510 observations, 15 countries, R2 0.72.
  - Specification (2): 2005M1-2011M6, 732 observations, 15 countries, R2 0.77.
  - Coefficients (selected):
    - Expected gross debt t+1 (percent of GDP): 0.04 (0.01) in [1]; not included in [2].
    - Expected overall balance t+1 (percent of GDP): -0.13 (0.09) * in [1]; -0.15 (0.09) * in [2].
    - Expected inflation rate t+1 (percent): 0.24 (0.10) *** in [1]; 0.34 (0.05) **** in [2].
    - Expected real GDP growth rate t+1 (percent): -0.22 (0.06) **** in [1]; -0.22 (0.08) *** in [2].
    - Domestic Treasury bill rate (percent): 0.48 (0.13) **** in [1]; 0.45 (0.09) **** in [2].
    - U.S. 10 year bond yield (percent): 0.28 (0.20) in [1]; 0.28 (0.22) in [2].
    - Change in the stock market index (percent): -0.00 (0.00) in [1]; -0.00 (0.00) * in [2].
    - Foreign bond fund flows (percent of GDP): 0.38 (2.15) in [1]; 1.99 (1.70) in [2].
  - Interpretation from fixed effects:
    - A 1 percentage point increase in the expected fiscal deficit pushes up nominal bond yields by about 13 to 15 basis points across specifications.
    - A 1 percentage point increase in the one-year-ahead expected gross public debt-to-GDP ratio raises nominal yields by 4 basis points (Specification [1]).
    - Higher inflation expectations raise long-term bond yields; higher expected growth compresses yields.
- Panel threshold estimation (selected exact results):
  - Estimated VIX threshold γ = 25.56; Supremum Wald-test = 70.76 with p-value 0.018 (statistically significant sample break).
  - Sample split:
    - High risk-aversion regime (VIX > 25.56): 177 observations.
    - Low risk-aversion regime (VIX ≤ 25.56): 333 observations.
  - Fixed effects results by regime (selected coefficients; standard errors in parentheses):
    - High risk-aversion (VIX high):
      - Expected gross debt t+1 (percent of GDP): 0.06 (0.02) ***.
      - Expected overall balance t+1 (percent of GDP): -0.31 (0.09) ***.
      - Expected inflation rate t+1 (percent): 0.19 (0.19) (not significant).
      - Expected real GDP growth rate t+1 (percent): 0.10 (0.08) (not significant).
      - Domestic Treasury bill rate (percent): 0.60 (0.10) ***.
      - U.S. 10 year bond yield (percent): 0.23 (0.29) (not significant).
      - R2 0.58; number of countries 14.
    - Low risk-aversion (VIX low):
      - Expected gross debt t+1 (percent of GDP): 0.02 (0.01) (not significant).
      - Expected overall balance t+1 (percent of GDP): -0.04 (0.11) (not significant).
      - Expected inflation rate t+1 (percent): 0.38 (0.05) ***.
      - Expected real GDP growth rate t+1 (percent): -0.35 (0.12) **.
      - Domestic Treasury bill rate (percent): 0.37 (0.12) ***.
      - U.S. 10 year bond yield (percent): 0.42 (0.20) *.
      - R2 0.53; number of countries 15.
  - Interpretation of threshold results:
    - High VIX regime: fiscal variables (expected debt and expected overall balance) significantly affect domestic yields—every additional percentage point in expected debt-to-GDP raises yields by 6 basis points; every percentage point expected worsening in overall fiscal balance-to-GDP raises yields by 30 basis points.
    - Low VIX regime: yields respond primarily to inflation and expected real GDP growth.

### VIII. Robustness and Out-of-Sample Evidence
- Robustness checks:
  - Results robust to using Consensus Economics expectations, long-term expectations (4 years ahead), including debt and deficits one at a time, using money market rate instead of Treasury bill rate, and using US Treasury bill rate instead of U.S. 10 year bond rate.
- Out-of-sample prediction (May–August 2011 event):
  - When VIX rose and crossed the estimated threshold in mid-2011, the model captures that bond yields decreased for most countries while rising for countries with weaker fiscal positions (for example, debt above 50 percent of GDP), indicating heightened differentiation based on fiscal position.

### IX. Summary, Policy Implications, and Further Research
- Summary of conclusions:
  - Determinants of domestic bond yields in emerging markets are state-dependent on global risk aversion.
  - In tranquil times (VIX low), inflation and real GDP growth expectations dominate bond yield determination.
  - In high global risk aversion times (VIX > 25.56), fiscal fundamentals (expected debt and deficits) become key determinants, reflecting creditors’ greater concern about default risk.
- Policy implication:
  - Emerging economies should maintain fiscal prudence in good times because a shift in global risk sentiment can rapidly increase market sensitivity to fiscal vulnerabilities.
- Suggested directions for further research:
  - Analyze heterogeneity of negative spillovers from global risk aversion across countries as a function of country-specific characteristics such as strength of fiscal fundamentals and size of trade and financial linkages.

*Source: _wp12198 - 1. Descriptive Statistics (PDF chapter/section).*

### 1. Descriptive Statistics ..............................................................................................

### _wp12198 - 1. Descriptive Statistics ..............................................................................................

### Major Sections
- 1. Descriptive Statistics ........................................................................................................................ 12
- 2. Determinants of 10-year Domestic Bond Yields in Emerging EconomiesError! Bookmark not defined.
- 3. Threshold Model: Determinants of 10-year Domestic Bond Yields in Emerging Economies ........ 15

### Figures Listed
- Figure 1. Emerging Economies: Government Debt ..............................................................................6
- Figure 2. Emerging Economies: Domestic Government Debt Securities .............................................6
- Figure 3. Emerging Market Fund Assets...............................................................................................7
- Figure 4. Sovereign Domestic Bond Yields ..........................................................................................7
- Figure 5. Sovereign Domestic Bond Yields and Global Factors ..........................................................8
- Figure 6. Domestic Bond Yields and Fiscal Fundamentals, 2007-2011 ...............................................8
- Figure 7. Actual Change in Bond Yields Compared to Out-of-Sample Prediction ............................16

*Source: _wp12198 - 1. Descriptive Statistics (PDF chapter/section).*

### References .............................................................................................................

### _wp12198 - References .............................................................................................................

### I. INTRODUCTION
- Domestic sovereign debt markets in emerging economies have grown markedly since the mid-1990s and currently represent governments’ main source of financing.
- Paper objective: investigate how the extent to which fiscal variables affect domestic bond yields in emerging economies depends on the level of global risk aversion, proxied by the VIX.
- Key methodological contributions:
  - Novel high-frequency panel dataset for 26 emerging economies between 2005 and 2011 with monthly observations for long-term domestic bond yields and market expectations of fiscal variables (deficit and debt-to-GDP ratio), inflation, and real GDP.
  - Use of a panel threshold model to allow explanatory variables to have differing regression slopes depending on whether global risk aversion is above or below an endogenously chosen threshold.
- Principal empirical findings (overview):
  - When global risk aversion is low, domestic bond yields are mostly influenced by inflation and real GDP growth expectations.
  - When global risk aversion is high, expectations regarding fiscal deficits and government debt become significant determinants of domestic bond yields.
  - Quantified effects in high risk aversion regime: every additional percentage point in expected debt-to-GDP raises domestic bond yields by 6 basis points; every percentage point expected worsening in the overall fiscal balance-to-GDP ratio raises yields by 30 basis points.
- Policy implication highlighted: emerging economies need to remain fiscally prudent in good times because favorable conditions could shift unexpectedly.

### II. BACKGROUND AND LITERATURE REVIEW
- Theoretical context:
  - Ricardian vs. non-Ricardian responses to fiscal expansions (Barro, 1974; Modigliani, 1961; Blinder and Solow, 1973).
  - International capital mobility implies fiscal policy affects interest rates indirectly via the risk premium (Mundell, 1963).
- Empirical literature:
  - Advanced-economy studies: majority find higher fiscal deficits and public debt raise interest rates; estimated impact of a one percent of GDP change in the fiscal deficit ranges from 10 basis points to 60 basis points (Laubach, 2009).
  - Emerging-market domestic bond studies are fewer: Peiris (2010) finds a one percent increase in the fiscal balance-to-GDP ratio lowers long-term bond yields by about 20 basis points; Baldacci and Kumar (2010) find higher fiscal deficits and public debt raise long-term nominal bond yields in both advanced and emerging markets.
  - Global factors: global risk aversion, liquidity, and market sentiment affect sovereign spreads and can amplify fiscal effects (McGuire and Schrijvers, 2003; Eichengreen and Mody, 2000; Gonzales-Rozada and Levy-Yeyati, 2008).
  - Prior work using VIX thresholds (Baldacci and Kumar, 2010) chose thresholds exogenously; current paper estimates threshold endogenously.

### III. STYLIZED FACTS
- Market evolution and composition:
  - In 2011, domestic debt represented close to 85 percent of general government debt on average, compared to 67 percent in 2000.
  - Government securities reached 27 percent of GDP on average and represented the bulk of new issuances.
  - Assets of dedicated emerging market fixed-income funds exceeded US$180 billion at end-2011, almost two-fold higher than five years earlier.
- Yield behavior and cross-country dispersion:
  - Sovereign domestic bond yields declined in early 2000s but exhibited considerable volatility for some countries; the financial crisis increased cross-country differentiation with some yields jumping to double digits.
  - Standard deviation across domestic bond yields increased with upward movements in the VIX; U.S. 10 year bond yield (global liquidity proxy) also appears to play a role.
- Fiscal fundamentals and yields:
  - Countries with higher overall balances tend to have lower domestic bond yields; countries with higher debt tend to have higher domestic bond yields.
- Data note: monthly one-year ahead expectations of fiscal variables are from Economist Intelligence Unit.

### IV. EMPIRICAL MODEL SPECIFICATION
- Baseline model: fixed effects panel model with robust standard errors:
  - Dependent variable: nominal long-term domestic bond yields.
  - Explanatory variables: market expectations of fiscal variables (public debt and fiscal deficit), real GDP growth, inflation, short-term nominal interest rate, U.S. long-term bond yield, bond fund flows into domestic bond markets, and change in local stock market index.
  - Fixed effects control for time-invariant country characteristics.
- Addressing nonlinearity via panel threshold model:
  - Threshold variable: VIX (Chicago Board Options Exchange Volatility Index).
  - Methodology: Hansen (1996, 2000) panel threshold estimation to determine threshold value endogenously by minimizing sum of mean squared errors and testing significance via Supremum Wald-test with bootstrap critical values.
  - Model allows separate regression slopes for regimes where VIX is above or below estimated threshold.
- Estimation diagnostics:
  - Hausman (1978) test rejects random effects in favor of fixed effects at the 1 percent level.
  - Cross-sectional dependence present (Pesaran CD test); CCEMG estimator yields similar results except debt expectation significance changes, but CCEMG may be ill-suited due to sample unbalancedness.

### V. DATA AND ESTIMATION RESULTS
A. Data sources and sample
- Unbalanced panel: monthly observations for 26 emerging economies between January 2005 and April 2011.
- Key data elements and sources:
  - Long-term (typically 10-year) domestic bond yields: Bloomberg, Haver, IFS.
  - Market expectations (one-year ahead) of inflation, real GDP growth, fiscal balance, and public debt-to-GDP: Economist Intelligence Unit (EIU).
  - Domestic Treasury bill and money market rates: Bloomberg, Haver, IFS.
  - U.S. long-term bond yield: Bloomberg.
  - Bond fund flows into emerging markets: EPFR Global via Haver.
  - Stock market indices: MSCI emerging market indices via Haver.
  - Robustness checks use Consensus Economics forecasts where available.
- Descriptive statistics (Table 1):
  - Long-term domestic bond yield (percent): Mean 7.7, Median 7.3, Standard deviation 3.2, 10th percentile 4.0, 90th percentile 12.4.
  - Expected gross debt t+1 (percent of GDP): Mean 38.7, Median 40.6, Standard deviation 20.0, 10th percentile 10.1, 90th percentile 62.2.
  - Expected overall balance t+1 (percent of GDP): Mean -2.5, Median -2.5, Standard deviation 2.5, 10th percentile -5.9, 90th percentile 0.3.
  - Expected inflation rate t+1 (percent): Mean 5.8, Median 4.7, Standard deviation 4.9, 10th percentile 2.5, 90th percentile 9.3.
  - Expected real GDP growth rate t+1 (percent): Mean 4.7, Median 4.8, Standard deviation 2.1, 10th percentile 2.6, 90th percentile 7.2.
  - Domestic Treasury bill rate (percent): Mean 6.8, Median 6.6, Standard deviation 4.0, 10th percentile 2.2, 90th percentile 12.0.
  - Change in the stock market index (percent): Mean 22.5, Median 22.9, Standard deviation 40.5, 10th percentile -33.4, 90th percentile 69.3.
  - Foreign bond fund flows (percent of GDP): Mean 13.9, Median 3.9, Standard deviation 36.9, 10th percentile -13.6, 90th percentile 55.7.

B. Estimation results
- Basic fixed effects regression (two specifications; Table 2 notes):
  - Specification (1): 2007M1-2011M6, 510 observations, 15 countries, R2 0.72.
  - Specification (2): 2005M1-2011M6, 732 observations, 15 countries, R2 0.77.
  - Coefficient estimates (selected, exact values preserved):
    - Expected gross debt t+1 (percent of GDP): 0.04 (standard error 0.01) **** in [1]; not included in [2].
    - Expected overall balance t+1 (percent of GDP): -0.13 (0.09) * in [1]; -0.15 (0.09) * in [2].
    - Expected inflation rate t+1 (percent): 0.24 (0.10) *** in [1]; 0.34 (0.05) **** in [2].
    - Expected real GDP growth rate t+1 (percent): -0.22 (0.06) **** in [1]; -0.22 (0.08) *** in [2].
    - Domestic Treasury bill rate (percent): 0.48 (0.13) **** in [1]; 0.45 (0.09) **** in [2].
    - U.S. 10 year bond yield (percent): 0.28 (0.20) in [1]; 0.28 (0.22) in [2].
    - Change in the stock market index (percent): -0.00 (0.00) in [1]; -0.00 (0.00) * in [2].
    - Foreign bond fund flows (percent of GDP): 0.38 (2.15) in [1]; 1.99 (1.70) in [2].
  - Interpretation:
    - An increase in the expected fiscal deficit of 1 percent of GDP pushes up nominal bond yields by about 13 to 15 basis points across specifications.
    - An increase in the one-year-ahead expected gross public debt-to-GDP ratio of 1 percentage point increases nominal yields by 4 basis points (Specification [1]).
    - Higher inflation expectations raise long-term bond yields; higher expected growth compresses yields.
    - Bond fund flows and stock market change not significant, but excluding them reduces fit.
- Panel threshold estimation (Table 3):
  - Estimated VIX threshold γ = 25.56; Supremum Wald-test = 70.76 with p-value 0.018 (statistically significant sample break).
  - Sample split: High risk-aversion regime (VIX > 25.56): 177 observations; Low risk-aversion regime (VIX ≤ 25.56): 333 observations.
  - Fixed effects results by regime (selected coefficients, exact values preserved):
    - High risk-aversion (VIX high):
      - Expected gross debt t+1 (percent of GDP): 0.06 (0.02) ***.
      - Expected overall balance t+1 (percent of GDP): -0.31 (0.09) ***.
      - Expected inflation rate t+1 (percent): 0.19 (0.19) (not significant).
      - Expected real GDP growth rate t+1 (percent): 0.10 (0.08) (not significant).
      - Domestic Treasury bill rate (percent): 0.60 (0.10) ***.
      - U.S. 10 year bond yield (percent): 0.23 (0.29) (not significant).
      - R2 0.58; number of countries 14.
    - Low risk-aversion (VIX low):
      - Expected gross debt t+1 (percent of GDP): 0.02 (0.01) (not significant).
      - Expected overall balance t+1 (percent of GDP): -0.04 (0.11) (not significant).
      - Expected inflation rate t+1 (percent): 0.38 (0.05) ***.
      - Expected real GDP growth rate t+1 (percent): -0.35 (0.12) **.
      - Domestic Treasury bill rate (percent): 0.37 (0.12) ***.
      - U.S. 10 year bond yield (percent): 0.42 (0.20) *.
      - R2 0.53; number of countries 15.
  - Interpretation:
    - High VIX regime: fiscal variables (expected debt and expected overall balance) significantly affect domestic yields—every additional percentage point in expected debt-to-GDP raises yields by 6 basis points; every percentage point expected worsening in overall fiscal balance-to-GDP raises yields by 30 basis points.
    - Low VIX regime: yields respond primarily to inflation and expected real GDP growth.
- Robustness:
  - Results robust to using Consensus Economics expectations, long-term expectations (4 years ahead), including debt and deficits one at a time, using money market rate instead of Treasury bill rate, and using US Treasury bill rate instead of U.S. 10 year bond rate.
- Out-of-sample prediction (May–August 2011 event):
  - When VIX rose and crossed the estimated threshold in mid-2011, model captures that bond yields decreased for most countries while rising for countries with weaker fiscal positions (e.g., debt above 50 percent of GDP), indicating heightened differentiation based on fiscal position.

### VI. SUMMARY AND CONCLUSIONS
- Main conclusions:
  - Determinants of domestic bond yields in emerging markets are state-dependent on global risk aversion.
  - In tranquil times (low VIX), inflation and real GDP growth expectations dominate bond yield determination.
  - In high global risk aversion times (VIX > 25.56), fiscal fundamentals (expected debt and deficits) become key determinants, reflecting creditors’ greater concern about default risk.
- Policy implication:
  - Emerging economies should maintain fiscal prudence in good times because a shift in global risk sentiment can rapidly increase market sensitivity to fiscal vulnerabilities.
- Suggested directions for further research:
  - Analyze heterogeneity of negative spillovers from global risk aversion across countries as a function of country-specific characteristics such as strength of fiscal fundamentals and size of trade and financial linkages.

### APPENDIX (DATA SOURCES AND COVERAGE)
- Data overview:
  - Long-term domestic bond yields: monthly, sources Bloomberg, Haver, IFS (varies by country).
  - Treasury bill rates and money market rates: Bloomberg, Haver, IFS (coverage varies; some countries no observations).
  - Forecasts (one-year ahead) of inflation, real GDP growth, public debt, fiscal balance: Economist Intelligence Unit (EIU) for baseline; Consensus Economics used for robustness checks where available.
  - U.S. long-term nominal domestic bond yield: Bloomberg.
  - MSCI Emerging Market Index: Haver.
  - Bond funds flows into emerging markets: EPFR Global via Haver.
  - VIX: Bloomberg.
- Coverage notes:
  - Dataset is unbalanced; some variables (e.g., expected gross debt) available only since 2007 for most countries.
  - Table A.2 and Table A.3 provide country-level start dates and gap indicators for long-term bond yields and Treasury bill rates respectively (details provided in the Appendix tables).

*Italic: Source — _wp12198 - References .............................................................................................................*

### REFERENCES

### _wp12198 - REFERENCES

### Literature on fiscal policy, public debt, and interest rates
- Afonso, A. and Jalles J.T. (2011), ―Growth and Productivity: The Role of Government Debt,‖ School of Economics and Management, Technical University of Lisbon, Working Paper No. 13/2011 (Lisbon: Technical University)
- Baldacci E. and Kumar M., (2010), ―Fiscal Deficits, Public Debt, and Sovereign Bond Yields‖, IMF Working Paper 10/184 (Washington: International Monetary Fund).
- Baldacci, E., G. Sanjeev, and A. Mati (2008), ―Is It (Still) Mostly Fiscal? Determinants of Sovereign Spreads in Emerging Markets‖, IMF Working Paper 08/259 (Washington: International Monetary Fund).
- Barro, R. J. (1974), ―Are Government Bonds Net Wealth?‖ Journal of Political Economy, Vol. 82, pp. 1095–1117.
- Blinder, A. S. and Solow, R.M. (1973), ―Does Fiscal Policy Matter?‖ Journal of Public Economics, Vol. 2, pp. 319–337.
- Faini, R. (2006), ―Fiscal Policy and Interest Rates in Europe,‖ Economic Policy, Vol. 21, No. 47, pp. 443-489.
- Friedman, B. (2005) ―Deficits and Debt in the Short and Long Run,‖ NBER Working Paper, 11630.
- Gale, W. G. and Orszag, P. (2003), ―Economic Effects of Sustained Budget Deficits.‖ National Tax Journal, Vol. 56, pp. 463-85.
- Laubach T. (2009), ―New Evidence on the Interest Rate Effects of Budget Deficits and Debt,‖ Journal of the European Economic Association, Vol. 7, No. 4, pp. 858-885
- Modigliani, F. (1961), ―Long-run Implications of Alternative Fiscal Policies and the Burden of the National Debt,‖ Economic Journal, Vol. 71, pp. 730–755.
- Reinhart, V. and Sack, B. (2000), ―The Economic Consquences of Disappearing Government Debt,‖ Brookings Papers on Economic Activity, Economic Studies Program, Vol. 31, pp. 163-220 (Washington: Brookings Institution).

### Determinants of sovereign spreads, credit risk, and emerging market debt
- Akitobi, B. and T. Stratmann (2008), ―Fiscal Policy and Financial Markets‖, The Economic Journal, Vol. 118, pp. 1971–1985.
- Bellas, D., M. Papaioannou, and I. Petrova (2010), ―Determinants of Emerging Market Sovereign Bond Spreads: Fundamentals vs Financial Stress‖, IMF Working Paper No. 10/281 (Washington: International Monetary Fund).
- Caceres, C., V. Guzzo, and M. Segoviano (2010), ―Sovereings Spreads: Global Risk Aversion, Contagion or Fundamentals?‖ IMF Working Paper No. 10/120.
- Cantor, R. and F. Packer (1996), ―Determinants and Impact of Sovereign Credit Ratings‖, FRBNY Economic Policy Review, October.
- Dailami, M., P. R. Masson, and J.J. Padou (2008), ―Global Monetary Conditions Versus Country-Specific Factors in the Determination of Emerging Market Debt‖, Journal of International Money and Finance, Vol. 27, pp. 1325–1336.
- Edwards, S. (1984), ―LDC's Foreign Borrowing and Default Risk: An Empirical Investigation 1976—1980‖, NBER Working Paper No. 1172.
- Eichengreen, B. and A. Mody (2000), ―What Explains Changing Spreads on Emerging Market Debt?‖, in Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies, edited by S. Edwards, University of Chicago Press.
- Hartelius, K., K. Kashiwase, and L. Kodres (2008), ―Emerging Market Spread Compression:Is it Real or is it Liquidity?‖, IMF Working Paper No. 08/10 (Washington: International Monetary Fund).
- Kamin, S. and K. von Kleist (1999), ―The Evolution and Determinants of Emerging Market Credit Spreads in the 1990s’‖ BIS Working Paper 68 (Basel: Bank for International Settlements).
- McGuire, P. and M. Schrijvers (2003), ―Common Factors in Emerging Market Spreads‖, BIS Quarterly Review, December 2003 (Basel: Bank for International Settlements).
- Min, H.G. (1998), ―Determinants of Emerging Market Bond Spread: Do Economic Fundamentals Matter?‖ World Bank Policy Research Working Paper No. 1899 (Washington: The World Bank).
- Rowland, P. and J. L. Torres (2004), ―Determinants of Spread and Creditworthiness for Emerging Market Sovereign Debt: A Panel Data Study‖, Borradores de Economia 295, Banco de la Republica de Colombia.
- Uribe, M., and V.Z. Yue (2006), ―Country Spreads and Emerging Countries: Who drives Whom?‖ Journal of International Economics, Vol. 69, pp. 6-36.

### Bond markets, market structure, and foreign participation
- Bank for International Settlements (2007), ―Financial Stability and Local Currency Bond Markets‖, Committee on the Global Financial System Papers No. 28, June.
- Mihaljek, D., M. Scatigna, and A. Villar (2002), "The Development of Bond Markets in Emerging Economies," BIS Papers Number 11 (Basel: Bank for International Settlements).
- Peiris, S.J. (2010). ―Foreign Participation in Emerging Markets’ Local Currency Bond Markets,‖ IMF working Paper 10/88 (Washington: International Monetary Fund).

### Asset pricing, CAPM, regime-switching, and volatility models
- Audrino, F. and E. De Giorgi (2007), ―Beta Regimes for the Yield Curve‖, Journal of Financial Econometrics, Vol. 5, No. 3, pp. 456–490
- Brooks, R. D., R.W. Faff and M. Mckenzie (2002), ―Time-varying Country Risk: An Assessment of Alternative Modelling Techniques‖, The European Journal of Finance, Vol. 8, pp. 249–274.
- Chen, S. and N. Huang (2007), ―Estimates of the ICAPM with Regime-Switching Betas: Evidence from Four Pacific Rim Economies‖, Applied Financial Economics, Vol. 17, pp. 313–327.
- Galagedera, D. and R. Faff (2004), ―Modeling the Risk And Return Relation Conditional on Market Volatility and Market Conditions‖, International Journal of Theoretical and Applied Finance, Vol. 8, No. 1, pp. 75–95.
- Huang, H. (2001), ―Tests of CAPM With Nonstationary Beta‖, International Journal of Finance and Economics, 6: 255-268.
- Johansson, A. (2009), ―Stochastic Volatility and Time-Varying Country Risk in Emerging Markets‖, The European Journal of Finance, Vol. 15, No. 3, April, 337–363.
- Korkmaz, T. E. I. Çevik, and S. Gürkan (2010), ―Testing of the International Capital Asset Pricing Model With Markov Switching Model in Emerging Markets‖ Investment Management and Financial Innovations, Vol. 7, Issue 1.
- Longstaff, F., J. Pan, L. H. Pedersen, and K. J. Singleton (2011), :‖How Sovereign is Sovereign Credit Risk?‖, American Economic Journal: Macroeconomes, 3, pp. 75-103.

### Empirical methods, panel econometrics, and testing procedures
- Davies, R.B. (1977), ―Hypothesis Testing when a Nuisance Parameter is Only Present Under The Alternative, Biometrika, Vol. 64, pp. 247-54.
- Hansen, B. E. (1996), ―Inference When a Nuisance Parameter is not Identified Under The Null Hypothesis,‖ Econometrica, Vol. 64, pp. 413 - 430.
- Hansen, B. E. (2000), ―Sample Splitting and Threshold Estimation,‖ Econometrica, Vol. 68, pp. 575-603.
- Hausman, J.A. (1978), ―Specification Tests in Econometrics,‖ Econometrica, 46(6), pp. 1251-71.
- Pesaran, M. H. (2004). ―General Diagnostic Tests for Cross Section Dependence in Panels,‖ Cambridge Working Papers in Economics No. 0435 (Cambridge: Cambridge University).
- ———, 2006. ―Estimation and Inference in Large Heterogeneous Panels With A Multifactor Error Structure,‖ Econometrica, Vol. 74, No. 4, pp. 967-1012.

### Global factors, contagion, and market-wide risk drivers
- Gonzalez-Rozada, M. and E. Levy-Yeyati (2008), ―Global Factors And Emerging Market Spreads‖, The Economic Journal, Vol. 118 (November), pp. 1917–1936.
- McGuire, P. and M. Schrijvers (2003), ―Common Factors in Emerging Market Spreads‖, BIS Quarterly Review, December 2003 (Basel: Bank for International Settlements).
- Sløk, T. and M. Kennedy (2004), ―Factors Driving Risk Premia‖ OECD Working Paper No. 385 (Paris: Organization for Economic Cooperation and Development).
- International Monetary Fund (2004), Global Financial Stability Report: Market Developments and Issues, April (Washington: International Monetary Fund).
- Dailami, M., P. R. Masson, and J.J. Padou (2008), ―Global Monetary Conditions Versus Country-Specific Factors in the Determination of Emerging Market Debt‖, Journal of International Money and Finance, Vol. 27, pp. 1325–1336.

*References list from _wp12198 - REFERENCES*

---


_Source: https://www.imf.org/-/media/websites/imf/imported-full-text-pdf/external/pubs/ft/wp/2012/_wp12198.pdf_