Convergence vs. Divergence in Emerging Market Sovereign Spreads

Bertrand Candelon and Metodij Hadzi-Vaskov
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Bertrand Candelon: Université catholique de Louvain, LIDAM/LFIN, Belgium

No 2025008, LIDAM Reprints LFIN from Université catholique de Louvain, Louvain Finance (LFIN)

Abstract: Sovereign spreads in emerging market economies (EMEs) are typically found to be driven by both domestic or country-specific and global factors. In this context, the movements of sovereign spreads over time can be generally viewed as a balancing act between external (global) factors leading to common dynamics that give rise to convergence across emerging market sovereign spreads and country- or region-specific characteristics implying divergence across EMEs. Using a compact VAR setting, this study provides evidence on the implications of the most recent shock episode—the onset of the Covid-19 pandemic and the subsequent inflation surge (2021-23)—for sovereign spreads in three groups of EMEs: Latin America, Emerging Europe, and Emerging Asia. In particular, the analysis aims to explore (i) the extent to which sovereign spreads showed signs of convergence or divergence both within and across EME regions, and (ii) what role the onset of the Covid-pandemic played in terms of changing these dynamics.

Pages: 19
Date: 2025-08-01
Note: In: Convincing Economics : Essays in honour of Prof. Dr. Clemens Kool / Jaap Bos, Mark Sanders (eds). Maastricht University Press, 2025, p. 93-111
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Persistent link: https://EconPapers.repec.org/RePEc:ajf:louvlr:2025008

DOI: 10.26481/mup.2501

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