Working Paper: CEPR ID: DP5528
Authors: Paolo Mauro; Nathan Sussman; Yishay Yafeh
Abstract: Drawing on a newly-collected data set on bond yields, macroeconomic variables, and news of various categories for a panel of emerging markets, we provide the first comparative analysis of the determinants of sovereign bond spreads in the first era of financial globalization and bond finance (1870-1913) and today (1994-2002). We find that news about wars or episodes of politically-motivated violence are a significant and robust determinant of spreads; fiscal variables also play a role; in contrast, news about institutional reforms seldom have a rapid and significant impact. There are also important differences between the two eras: country-specific fundamentals account for a greater share of variation in spreads during the pre-WWI period than today.
Keywords: bond yields; emerging markets; financial globalization
JEL Codes: F34; G15; N20
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| wars and episodes of politically motivated violence (D74) | cost of borrowing (G21) |
| doubling of war-related news (H56) | increase in spreads (G19) |
| institutional reforms (O17) | cost of borrowing (G21) |
| macroeconomic variables and news events (E60) | bond spreads (G12) |
| country-specific fundamentals (F29) | bond spreads (G12) |
| average spreads for emerging markets (G15) | individual country spreads (O57) |