Working Paper: CEPR ID: DP14392
Authors: Benjamin Born; Gernot Müller; Johannes Pfeifer; Susanne Wellmann
Abstract: Interest-rate spreads fluctuate widely across time and countries. We characterize their behavior using some 3,200 quarterly observations for 21 advanced and 17 emerging economies since the early 1990s. Before the financial crisis, spreads are 10 times more volatile in emerging economies than in advanced economies. Since 2008, the behavior of spreads has converged across country groups, largely because it has adjusted in advanced economies. We also provide evidence on the transmission of spread shocks and find it similar across sample periods and country groups. Spread shocks have become a more important source of output fluctuations in advanced economies after 2008.
Keywords: country spreads; country risk; interest rate shocks; financial crisis; business cycle; spread shocks; average treatment effect
JEL Codes: G15; F41; E32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| spread shocks (E32) | output fluctuations (E39) |
| spread shocks (E32) | spread increase (F62) |
| spread shocks (E32) | stock market contraction (E32) |
| spread shocks (E32) | real exchange rate depreciation (F31) |
| spread shocks (E32) | bank lending contraction (G21) |
| spread shocks (E32) | fiscal policy response (E62) |
| spread shocks (E32) | monetary policy response (E52) |