On Corporate Borrowing, Credit Spreads and Economic Activity in Emerging Economies: An Empirical Investigation

Julian Caballero, Andrés Fernández Martin and Jongho Park

No 7793, IDB Publications (Working Papers) from Inter-American Development Bank

Abstract: This paper studies the influence of external financial factors on economic activity in emerging economies (EMEs) motivated by a considerable increase in foreign financing by the corporate sector in EMEs since the early 2000s, mainly in the form of bond issuance. A quarterly external financial indicator for several EMEs is built using bond-level data on spreads of corporate bonds issued in foreign capital markets, and its relationship with economic activity is examined. Results show that the indicator has considerable predictive power on future economic activity. Furthermore, an identified adverse shock to the financial indicator generates a large and protracted fall in real output growth, and about a third of its forecast error variance is associated with this shock. These findings are robust to controlling for possible spillovers from sovereign to corporate risk, among other considerations.

Keywords: credit spreads; external financial conditions; corporate borrowing (search for similar items in EconPapers)
JEL-codes: E32 E37 F34 F37 G15 (search for similar items in EconPapers)
Date: 2016-08
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: On corporate borrowing, credit spreads and economic activity in emerging economies: An empirical investigation (2019)
Working Paper: On Corporate Borrowing, Credit Spreads and Economic Activity in Emerging Economies: An Empirical Investigation (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:idb:brikps:7793

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