Exchange Rate Policy and Sovereign Bond Spreads in Developing Countries

Zhanwei Yue and Samir Jahjah

No 2004/210, IMF Working Papers from International Monetary Fund

Abstract: We test the hypothesis of a link between exchange rate policy and sovereign bonds. We analyze the effect of exchange rate policies on supply and credit spreads of sovereign bonds issued by developing countries. An exchange rate policy is captured by the de facto exchange rate regime and the real exchange rate misalignment. The main findings are: (1) real exchange rate overvaluation significantly increases sovereign bond issue probability and raises bond spreads; (2) spreads and the likelihood of issuing bonds depend on the exchange rate regime; (3) exchange rate misalignment under a hard peg significantly increases bond spreads; (4) in time of debt crises, exchange rate policy also greatly affects the sovereign bond market, especially through exchange rate overvaluation.

Keywords: WP; exchange rate; exchange rate misalignment; bond issue; Sovereign Credit Spreads; Exchange Rate Regimes; Overvaluation; Debt Crises; regime classification; × INT; bond issue probability; regime country; × float; exchange rate overvaluation; misalignment × FIX; Exchange rate arrangements; Exchange rates; Exchange rate policy; Yield curve; Global (search for similar items in EconPapers)
Pages: 36
Date: 2004-11-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.imf.org/external/pubs/cat/longres.aspx?sk=17467 (application/pdf)

Related works:
Journal Article: Exchange Rate Policy and Sovereign Bond Spreads in Developing Countries (2013)
Working Paper: Exchange Rate Policy and Sovereign Bond Spreads in Developing Countries (2013)
Working Paper: Exchange rate policy and sovereign bond spreads in developing countries (2012)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:imf:imfwpa:2004/210

Ordering information: This working paper can be ordered from
http://www.imf.org/external/pubs/pubs/ord_info.htm

Access Statistics for this paper

More papers in IMF Working Papers from International Monetary Fund International Monetary Fund, Washington, DC USA. Contact information at EDIRC.
Bibliographic data for series maintained by Akshay Modi ().