IMF Staff Papers - Volume 48, Number 3, 2001 - How Does U.S. Monetary Policy Influence Sovereign Spreads in Emerging Markets? by Vivek Arora and Martin Cerisola

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last updated: January 2002
Volume 48, Number 3

How Does U.S. Monetary Policy Influence Sovereign Spreads in Emerging Markets?
Vivek Arora and Martin Cerisola

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Abstract: This paper quantifies the impact of changes in U.S. monetary policy on sovereign bond spreads in emerging market countries. Specifically, the paper explores empirically how country risk, as proxied by sovereign bond spreads, is influenced by U.S. monetary policy, country-specific fundamentals, and conditions in global capital markets. While country-specific fundamentals are important in explaining fluctuations in country risk, the stance and predictability of U.S. monetary policy are also important for stabilizing capital flows and capital market conditions in emerging markets. [JEL E43, F36, G15]