IMF Working Papers

The Value of Institutions for Financial Markets: Evidence From Emerging Markets

By Thomas Stratmann, Bernardin Akitoby

February 1, 2009

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Thomas Stratmann, and Bernardin Akitoby. The Value of Institutions for Financial Markets: Evidence From Emerging Markets, (USA: International Monetary Fund, 2009) accessed November 9, 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 investigates the value of political institutions for financial markets, using panel data from emerging market countries. We test the hypothesis that changes in political institutions, such as improvements in democratic rights and increased government accountability, have a direct effect on sovereign interest rate spreads. We find that financial markets value institutions over and above the economic and fiscal outcomes these institutions shape. Democracy and accountability generally lower sovereign spreads, political risk tends to increase them, and financial markets tend to view election years negatively.

Subject: Current spending, Expenditure, Fiscal policy, Housing, Inflation, National accounts, Output gap, Prices, Production

Keywords: Country indicator, Current spending, Debt ratio, Default history, Emerging markets, Financial markets, Fiscal policy variable, Global, Government institution, Housing, Inflation, Inflation rate, Institutions, Interest rates spread, Output gap, Presidential system, Sovereign risk, Spread, Spread index, Spreads, WP

Publication Details

  • Pages:

    23

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2009/027

  • Stock No:

    WPIEA2009027

  • ISBN:

    9781451871746

  • ISSN:

    1018-5941

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