Emerging Debt Markets: What Do Correlations and Spreads Tell Us?

Irina Bunda (), A. Javier Hamann () and Subir Lall ()
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Irina Bunda: LEO - Laboratoire d'économie d'Orleans [2008-2011] - UO - Université d'Orléans - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper proposes a conceptual framework to identify the potential sources of contagion in emerging bond markets and the mechanisms through which shocks originating in a particular emerging or mature market are likely to be transmitted across countries and markets. We then apply this framework to the emerging countries initially included in the EMBI Global Index over the period 1997-2005. We put into light that emerging markets became less and less intertwined over the recent period, and that, at present, the risk of contagion may come mainly from events taking place into mature markets. Finally, we derive policy recommendations in order to reduce emerging countries debt variability thus making them less vulnerable to a shock that takes place in mature markets. Sound macroeconomic policies, and in particular, prudent fiscal ones, could enhance government discipline and limit contagion effects in a wake of a global shock or a shock affecting another emerging country.

Keywords: Emerging bond markets; International financial crises; Excess comovement; Contagion; Public debt (search for similar items in EconPapers)
Date: 2007-08-27
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00424468
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Published in 22nd Meeting of the European Economic Association (EEA), Aug 2007, Budapest, Hungary

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00424468

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