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Emerging market corporate bond yields and monetary policy

Yannick Timmer

Emerging Markets Review, 2018, vol. 36, issue C, 130-143

Abstract: I examine spillover of monetary policy on corporate bond yields. Emerging market corporate bond yields are positively associated with the federal funds rate. However, this positive relation is transmitted through the domestic policy rate. If domestic policy rates are held constant, the spillover of US monetary policy on corporate bond yields diminishes. This suggests that domestic policymakers face a tradeoff: if they leave their policy rate unchanged when the Fed hikes, this may have benign consequences for corporate bond yields. However, a higher US policy rate may lead to exchange rate depreciation for emerging market currencies and thus elevated debt burdens for their US dollar debtors. Alternatively, if the Fed hikes and policymakers follow suit, funding conditions for corporates worsen through higher yields.

Keywords: Global financial cycle; Monetary policy; Emerging markets; Corporate funding conditions (search for similar items in EconPapers)
JEL-codes: E43 E52 F38 (search for similar items in EconPapers)
Date: 2018
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DOI: 10.1016/j.ememar.2018.04.001

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