Working Paper: NBER ID: w30477
Authors: Joshua Aizenman; Gazi Salah Uddin; Tianqi Luo; Ranadeva Jayasekera; Donghyun Park
Abstract: This paper examines whether prudential policies help to reduce sovereign bond vulnerability to global spillover risk in ASEAN-4 countries (Indonesia, Malaysia, the Philippines, and Thailand). We measure sovereign vulnerability within a risk connectedness network among sovereign bonds. The direct effect is that markets with tighter prudential policies have significantly smaller spillovers from the Treasury yield shocks of other regional and global economies. The sum of indirect and direct effects indicates that prudential policies reduce sovereign spillover risk in the long term. These findings suggest prudential policies have dual efficiency in sovereign risk regulation and Treasury internationalization.
Keywords: macroprudential policies; sovereign bonds; spillover risk; ASEAN4; financial stability
JEL Codes: E52; E58; F42
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Economic growth and credit rating upgrades (O00) | Increased vulnerability of ASEAN sovereign bonds (F65) |
| Tighter macroprudential policies (E61) | Reduced spillover risks from treasury yield shocks (E43) |
| Direct and indirect effects of prudential policies (G18) | Long-term reduction in sovereign spillover risk (H63) |
| Tighter macroprudential policies (E61) | Long-term reduction in sovereign spillover risk (H63) |