US real interest rates and default risk in emerging economies

Nathan Foley-Fisher and Bernardo Guimaraes

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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)
Pages: 14 pages
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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http://eprints.lse.ac.uk/28683/ Open access version. (application/pdf)

Related works:
Journal Article: U.S. Real Interest Rates and Default Risk in Emerging Economies (2013)
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:ehl:lserod:28683

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