US Real Interest Rates and Default Risk in Emerging Economies

Nathan Foley-Fisher and Bernardo Guimaraes

CEP Discussion Papers from Centre for Economic Performance, LSE

Abstract: We empirically analyse the appropriateness of indexing emerging market sovereign debt to US real interest rates. We find that policy-induced exogenous increases in US rates raise default risk in emerging market economies, as hypothesised in the theoretical literature. However, we also find evidence that omitted variables which simultaneously increase US real interest rates and reduce the risk of default dominate the hypothesised relationship. We can only conclude that it's not a good idea to index emerging market bonds to US real interest rates.

Keywords: real interest rates; default; sovereign debt; identification through heteroskedasticity (search for similar items in EconPapers)
JEL-codes: F34 G15 (search for similar items in EconPapers)
Date: 2009-10
New Economics Papers: this item is included in nep-rmg
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Citations: View citations in EconPapers (5)

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https://cep.lse.ac.uk/pubs/download/dp0952.pdf (application/pdf)

Related works:
Journal Article: U.S. Real Interest Rates and Default Risk in Emerging Economies (2013)
Working Paper: US real interest rates and default risk in emerging economies (2012)
Working Paper: U.S. real interest rates and default risk in emerging economies (2012)
Working Paper: US real interest rates and default risk in emerging economies (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:cep:cepdps:dp0952

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