Global Monetary Tightening: Emerging Markets Debt Dynamics and Fiscal Crises

Julio Escolano, Christina Kolerus and Constant Lonkeng Ngouana ()

No 2014/215, IMF Working Papers from International Monetary Fund

Abstract: This paper finds that tightening global financial conditions can worsen emerging economies’ public debt dynamics through an increasing interest rate-growth differential, particularly if coupled with high global risk aversion. Latin America and emerging Europe are the regions most likely to be adversely affected. In addition, historical evidence—analyzed by means of a Poisson count model—suggests that the frequency of sovereign debt crises increases in emerging economies at the early stage of U.S. monetary tightening cycles, at times in which the term spread also rises. The timing may be related to abrupt switches of expectations about the future course of policy in the early stages of tightening cycles.

Keywords: WP; debt crisis; Debt dynamics; emerging markets; sovereign debt crisis; unconventional; EM interest rates; EMS Interest Rate Growth Differential; growth differential; non-resident debt; EM debt dynamics; debt fundamentals; Bond yields; Yield curve; Monetary tightening; Global; Europe (search for similar items in EconPapers)
Pages: 28
Date: 2014-12-12
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Citations: View citations in EconPapers (1)

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