Emerging market sovereign spreads, global financial conditions and US macroeconomic news

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Oezatay F., ÖZMEN E., Sahinbeyogu G.

ECONOMIC MODELLING, vol.26, no.2, pp.526-531, 2009 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 26 Issue: 2
  • Publication Date: 2009
  • Doi Number: 10.1016/j.econmod.2008.10.008
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.526-531
  • Keywords: Bond spreads, Emerging markets, Macroeconomic news, INTEREST-RATES, EXCHANGE-RATES, ECONOMIC-NEWS, COINTEGRATION, STOCK, TESTS, PRICES, BOND
  • Middle East Technical University Affiliated: Yes


We investigate the impact of global financial conditions. U.S. macroeconomic news and domestic fundamentals on the evolution of EMBI spreads for a panel of 18 emerging market (EM) countries using daily data. To this end, we consider not only the conventional panel cointegration procedures but also the recent common correlated effects method to tackle cross-section dependence that may stem from common global shocks such as contagion. The results suggest that the long-run evolution of EMBI spreads depends on global financial conditions, crises contagion and domestic fundamentals proxied by sovereign ratings. The results from panel equilibrium correction models suggest that EMBI spreads respond substantially also to U.S. macroeconomic news and changes in the Federal Reserve's target interest rates. The magnitude and the sign of the effect of the U.S. news, however, crucially depend on the state of the U.S. economy, such as the presence of inflation dominance. (C) 2008 Elsevier B.V. All rights reserved.