## Global Monetary Tightening: Emerging Markets Debt Dynamics and Fiscal Crises

_IMF Working Papers, December 12, 2014_

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**Canonical URL:** [Global Monetary Tightening: Emerging Markets Debt Dynamics and Fiscal Crises](https://www.imf.org/en/publications/wp/issues/2016/12/31/global-monetary-tightening-emerging-markets-debt-dynamics-and-fiscal-crises-42517)

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## Bibliographic details
- Authors: Julio Escolano, Christina Kolerus, Constant A Lonkeng Ngouana
- Published: December 12, 2014
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781475584691.001

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### Key findings and analysis
- Tightening global financial conditions can worsen emerging economies’ public debt dynamics through an increasing interest rate–growth differential.
- The adverse effect is particularly pronounced if tightening is coupled with high global risk aversion.
- Latin America and emerging Europe are the regions most likely to be adversely affected.
- Historical evidence analyzed with a Poisson count model suggests:
  - The frequency of sovereign debt crises increases in emerging economies at the early stage of U.S. monetary tightening cycles.
  - Increases in sovereign debt crises occur at times when the term spread also rises.
- The timing of elevated sovereign risk may be related to abrupt switches of expectations about the future course of policy in the early stages of tightening cycles.

### Methods and analytical approach
- Empirical analysis uses a Poisson count model to relate occurrences of sovereign debt crises to phases of U.S. monetary tightening and movements in the term spread.
- Focus on dynamics of the interest rate–growth differential as the channel through which global financial conditions affect public debt trajectories.

### Subject areas and keywords
- Subjects: Bond yields, Financial crises, Financial institutions, Financial services, Monetary policy, Monetary tightening, Public debt, Yield curve
- Keywords: Bond yields, debt crisis, Debt dynamics, debt fundamentals, EM debt dynamics, EM interest rates, emerging markets, EMS Interest Rate Growth Differential, Europe, Global, growth differential, Monetary tightening, non-resident debt, sovereign debt crisis, unconventional, WP, Yield curve

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_Source: https://www.imf.org/en/publications/wp/issues/2016/12/31/global-monetary-tightening-emerging-markets-debt-dynamics-and-fiscal-crises-42517_