Forecasting local currency bond risk premia of emerging markets: The role of cross‐country macrofinancial linkages

Çepni, Oğuzhan; Gupta, Rangan; Güney, İbrahim Ethem; Yılmaz, Muhammed Hasan

doi:10.1002/for.2669

Cited by 3 publications

(2 citation statements)

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“…In static factor models, it is a possible scenario that the factors do not cover relevant information for the variable of interest. Unlike the static factor models, the PLS approach generates latent factors that specifically regard estimating a given target, which is emerging markets' real exports in this paper (Cepni et al , 2020). The PLS outperforms the PCA for dimension reduction owing to the supervised nature of its algorithm (Maitra and Yan, 2008).…”

Section: Data Set and Empirical Resultsmentioning

confidence: 99%

Analysis of global economic policy uncertainty and export flows for emerging markets with panel VAR modeling

Aslan¹,

Acikgoz

2021

IJOEM

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PurposeThe purpose of this paper to examine how global economic policy uncertainty (GEPU) affects export flows of emerging market economies.Design/methodology/approachThis study examines the effect of GEPU on 28 emerging markets' export performance. GEPU variable used in the authors’ empirical analysis is measured by partial least square (PLS) factor loading model with the help of 24 countries' economic policy uncertainty index. A panel vector autoregression (VAR) model is employed for the estimations and monthly data over the 2006:01–2019:12 period are used.FindingsThe empirical findings show that while the real external income is the main factor that affects export flows, the real exchange rate is the least effective variable with regard to the variance decomposition, which is not expected by the related economic theory. Panel VAR estimations results confirm the previous studies and find that GEPU affects export flows negatively and significantly.Originality/valueTo the best of the authors’ knowledge, this is the sole study in terms of focusing on the impacts of GEPU on the export volume of emerging markets. The contribution of this paper is twofold. Firstly, a large set of countries with monthly frequented data that assist to capture uncertainties better is used. Secondly, the global economic policy index is obtained by employing the PLS method, which provides more robust results that are calculated with respect to the dependent variable.

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Section: Data Set and Empirical Resultsmentioning

confidence: 99%

Analysis of global economic policy uncertainty and export flows for emerging markets with panel VAR modeling

Aslan¹,

Acikgoz

2021

IJOEM

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“…highlight the combined importance of global and local factors in explaining bond risk premia, while Cepni and Güney (2019) find that the influence of local factors on bond risk premia can vary, among other aspects, with the level of risk aversion. Finally, the importance of global factors as drivers of EM bond risk premia is further stressed by the out-of-sample exercise proposed by Cepni et al (2020).…”

Section: Introductionmentioning

confidence: 99%

Bond risk premia in emerging markets: evidence from Brazil, China, Mexico, and Russia

Iania

Lyrio²,

Moura

2021

Applied Economics

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We employ an affine term structure model with no-arbitrage restrictions and unspanned risk factors to analyse the global and domestic determinants of bond risk premia in four major emerging markets (Brazil, China, Mexico, and Russia). Among the risk factors, we select national inflation and economic growth, and the country-specific nominal exchange rate against the US dollar as the variables related to the domestic economy. We include a measure of worldwide economic activity, the Market Volatility Index (VIX), and an aggregate price index of commodities in the group of global factors. Our model captures (long-term) movements of realized risk premia and indicates that global economic and financial factors play a relevant role in explaining country-specific bond risk premia dynamics. In contrast, domestic variables carry little explanatory power to rationalize risk premia developments in these four economies. We also provide evidence of heterogeneous responses of country-specific risk premia to global and domestic shocks.

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Are the global economic policy uncertainties blocking the export flows of emerging markets? A heterogeneous panel SVAR analysis

Aslan

Acikgoz

2023

Econ. J. Emerg. Mark.

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Purpose – This paper examines the effect of global economic policy uncertainty (EPU) on emerging markets (EMs) export flows. Methods – This paper uses a structural panel vector autoregression modeling approach to capture country interdependencies and the likelihood that EMs’ responses are heterogeneous and dynamic. An unbalanced monthly panel data from 2003:01 to 2019:12 is used to estimate impulse responses and variance decompositions not only for the entire panel data but also for each EM. Findings – The results show that global EPU has a persistent and negative effect on exports, while foreign income and the exchange rate increase export volumes in EMs. Given the different responses of EMs to uncertainty shocks, the second-stage regression estimates suggest that greater sectoral export diversification in an EM can potentially reduce the unfavorable impact of global EPU on their export flows. Meanwhile, the higher technology content of exports leads to a multiplication of global EPU transmissions. Implication – These findings advance the literature by highlighting the importance of accounting for the transmission effect of global EPU in EMs by considering country heterogeneity. Originality – This is the sole paper examining the factors that mitigate or amplify GEPU impacts on export flows by estimating second-step ordinary least square equations.

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Forecasting local currency bond risk premia of emerging markets: The role of cross‐country macrofinancial linkages

Abstract: In this paper, we forecast local currency debt of five major emerging market countries (Brazil, Indonesia,

Cited by 3 publications

References 42 publications

Analysis of global economic policy uncertainty and export flows for emerging markets with panel VAR modeling

Analysis of global economic policy uncertainty and export flows for emerging markets with panel VAR modeling

Bond risk premia in emerging markets: evidence from Brazil, China, Mexico, and Russia

Are the global economic policy uncertainties blocking the export flows of emerging markets? A heterogeneous panel SVAR analysis

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