The Value of Institutions for Financial Markets: Evidence From Emerging Markets
February 1, 2009
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Summary
This paper investigates the value of political institutions for financial markets, using panel data from emerging market countries. We test the hypothesis that changes in political institutions, such as improvements in democratic rights and increased government accountability, have a direct effect on sovereign interest rate spreads. We find that financial markets value institutions over and above the economic and fiscal outcomes these institutions shape. Democracy and accountability generally lower sovereign spreads, political risk tends to increase them, and financial markets tend to view election years negatively.
Subject: Current spending, Expenditure, Fiscal policy, Housing, Inflation, National accounts, Output gap, Prices, Production
Keywords: country indicator, Current spending, debt ratio, default history, emerging markets, financial markets, fiscal policy variable, Global, government institution, Housing, Inflation, inflation rate, institutions, interest rates spread, Output gap, presidential system, sovereign risk, spread, spread index, spreads, WP
Pages:
23
Volume:
2009
DOI:
Issue:
027
Series:
Working Paper No. 2009/027
Stock No:
WPIEA2009027
ISBN:
9781451871746
ISSN:
1018-5941
