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The COVID-19 shock and long-term interest rates in emerging market economies

Jakub Janus

Finance Research Letters, 2021, vol. 43, issue C

Abstract: Motivated by a divergent behavior of long-term sovereign bond yields across emerging market economies in the onset of the COVID-19 pandemic, we employ the Bayesian model averaging to uncover the country-specific factors that explain those differences. The most pronounced determinants of a country’s vulnerability to the COVID-19 shock were: (a) low GDP dynamics and (b) high sensitivity of bond yields to VIX in the period preceding the pandemic. Our results speak to the role of growth fundamentals in building-up the exposure to crises in emerging markets. They also signify a persistent differentiation of emerging economies by international investors.

Keywords: COVID-19; Emerging market economies; Bond markets; Global risk; Bayesian model averaging (search for similar items in EconPapers)
JEL-codes: E42 E52 F31 F36 F41 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/

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