Different No More: Country Spreads in Advanced and Emerging Economies

Benjamin Born (), Gernot J. Müller (), Johannes Pfeifer () and Susanne Wellmann ()
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Benjamin Born: University of Bonn, CEPR, CESifo, & ifo Institute
Gernot J. Müller: University of Tübingen, CEPR, & CESifo
Johannes Pfeifer: University of the Bundeswehr Munich
Susanne Wellmann: Unternehmer Baden-Württemberg

No 403, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: Interest rate spreads vary widely across time and countries and are a central driver of business cycles in emerging market economies (EMEs). Since 2008, advanced market economies (AMEs) have exhibited persistently higher and more volatile spreads, alongside increased macroeconomic volatility and stronger co-movement with EMEs. We document six facts showing that AMEs have become more similar to EMEs along key dimensions. We interpret these patterns through a small open economy model and uncover a stark dichotomy: higher spreads reflect greater indebtedness and lower debt tolerance, whereas greater macroeconomic volatility and co-movement are driven by stronger global shocks.

Keywords: Country spreads; debt; interest rate shocks; business cycle; financial frictions (search for similar items in EconPapers)
JEL-codes: E32 F41 G15 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2026-04
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-ifn
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