Empirical Determinants of Emerging Market Economies' Sovereign Bond Spreads

The pricing of sovereign risk and contagion during the European sovereign debt crisis

“…Ferrucci (2003). More recent work also included examining sovereign CDS spreads and sovereign ratings.…”

“…Given the lack of availability of some of these variables at a monthly frequency, we follow the literature in this regards using standard interpolation (e.g. Hauner et al, 2010;Dell'Ariccia et al, 2006;Ferrucci, 2003). Data for country-specific fundamentals stems from the IMF's IFS, while the VIX series is taken from Bloomberg.…”

Determinants of sovereign risk premia for European emerging markets

“…A somewhat different result was reached by Ferrucci (2003), who investigated the determinants of emerging market bond spreads in secondary markets, and tried to discover how far the changes in spreads could be explained by changes in fundamentals. Using a panel of EMBI data and macroeconomic variables and the pooled mean group technique, he found that the spreads were highly infl uenced by the fundamentals, but that non-fundamental factors, especially market sentiment, could not be neglected.…”

“…The variables we use are real GDP growth rate and infl ation rate. GDP growth is the key measure of overall macroeconomic performance, and is positively correlated with tax revenues, which are ultimately used to repay the debt (Cantor and Packer, 1996;Ferrucci, 2003). The rate of infl ation is another key measure of macroeconomic performance.…”

Fiscal and Monetary Nexus in Emerging Market Economies: How Does Debt Matter?

“…The dynamics of the 'bad' equilibrium (i.e., the one characterized by fiscal dominance) is as follows: in a country with large and mainly short-term public debt, an increase in interest rates aimed at keeping inflation within the target raises the cost of debt service. If the primary surplus remains 12 See, for example, Edwards (1984Edwards ( ,1986, Cline (1995), Cantor and Packer (1996), Cline and Barnes (1997), Eichengreen and Mody (1998), Min (1998), Kamin and Kleist (1999), Arora and Cerisola (2001), Dell' Ariccia et al (2002), Ferrucci (2003, IMF(2004), Zoli (2004). 13 See Easterly et al (1994), and Agenor and Montiel (1996), For industrial countries, empirical studies on the relationship between fis cal policy and interest rates have found mixed results.…”