Working Paper: NBER ID: w27030
Authors: Joshua Aizenman; Yothin Jinjarak; Donghyun Park; Huanhuan Zheng
Abstract: We analyze the sovereign bond issuance data of eight major emerging markets (EMs) - Brazil, China, India, Indonesia, Mexico, Russia, South Africa and Turkey from 1970 to 2018. Our analysis suggests that (i) EM local currency bonds tend to be smaller in size, shorter in maturity, or lower in coupon rate than foreign currency bonds; (ii) EMs are more likely to issue local-currency sovereign bonds if their currencies appreciated before the global financial crisis of 2008 (GFC); (iii) inflation-targeting monetary policy increases the likelihood of issuing local-currency debt before GFC but not after; and (iv) EMs that offer higher sovereign yields are more likely to issue local-currency bonds after GFC. Future data will allow us to test and identify structural changes associated with the COVID-19 pandemic and its aftermath.
Keywords: Emerging Markets; Sovereign Bonds; Local Currency Debt; Financial Fragility; Inflation Targeting
JEL Codes: F21; F31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| inflation targeting monetary policy (E63) | issuance of local currency bonds (H74) |
| higher sovereign yields (H63) | issuance of local currency bonds (H74) |
| local currency bonds characteristics (G15) | structural difference in bond characteristics (G12) |
| local currency appreciation (F31) | issuance of local currency bonds (H74) |