Global Monetary Tightening: Emerging Markets Debt Dynamics and Fiscal Crises

By Julio Escolano, Christina Kolerus, Constant A Lonkeng Ngouana

December 12, 2014

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Format: Chicago

Julio Escolano, Christina Kolerus, and Constant A Lonkeng Ngouana. Global Monetary Tightening: Emerging Markets Debt Dynamics and Fiscal Crises, (USA: International Monetary Fund, 2014) accessed December 4, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

This paper finds that tightening global financial conditions can worsen emerging economies’ public debt dynamics through an increasing interest rate-growth differential, particularly if coupled with high global risk aversion. Latin America and emerging Europe are the regions most likely to be adversely affected. In addition, historical evidence—analyzed by means of a Poisson count model—suggests that the frequency of sovereign debt crises increases in emerging economies at the early stage of U.S. monetary tightening cycles, at times in which the term spread also rises. The timing may be related to abrupt switches of expectations about the future course of policy in the early stages of tightening cycles.

Subject: Bond yields, Financial crises, Financial institutions, Financial services, Monetary policy, Monetary tightening, Public debt, Yield curve

Keywords: Bond yields, Debt crisis, Debt dynamics, Debt fundamentals, EM debt dynamics, EM interest rates, Emerging markets, EMS Interest Rate Growth Differential, Europe, Global, Growth differential, Monetary tightening, Non-resident debt, Sovereign debt crisis, Unconventional, WP, Yield curve

Publication Details

Pages:

28
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2014/215
Stock No:

WPIEA2014215
ISBN:

9781475584691
ISSN:

1018-5941

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