Emerging Market Local Currency Bond Yields and Foreign Holdings in the Post-Lehman Period: A Fortune or Misfortune?

39 Pages Posted: 4 Mar 2014

See all articles by Christian Ebeke

Christian Ebeke

Centre d’Etudes et de Recherches sur le Développement International, CERDI-CNRS

Yinqiu Lu

International Monetary Fund

Date Written: February 2014

Abstract

The paper shows that foreign holdings of local currency government bonds in emergingmarket countries (EMs) have reduced bond yields but have somewhat increased yieldvolatility in the post-Lehman period. Econometric analyses conducted from a sample of12 EMs demonstrate that these results are robust and causal. We use an identificationstrategy exploiting the geography-based measure of EMs financial remoteness vis-à-vismajor offshore financial centers as an instrumental variable for the foreign holdingsvariable.The results also show that, in countries with weak fiscal and external positions,foreign holdings are greatly associated with increased yield volatility. A case study usingPoland data elaborates on the cross country findings.

Keywords: Statistics, Data quality assessment framework, Reports on the Observance of Standards and Codes, Uruguay, national accounts, data sources, household expenditure, data accessibility, household consumption, national accounts data, national accounts statistics, government finance statistics, household surveys, income data, data collection, financial resources, government expenditure, household income, consumption patterns, statistical offices, government revenue, household data, input-output

JEL Classification: C32, C33, F30, G15

Suggested Citation

Ebeke, Christian and Lu, Yinqiu, Emerging Market Local Currency Bond Yields and Foreign Holdings in the Post-Lehman Period: A Fortune or Misfortune? (February 2014). IMF Working Paper No. 14/29, Available at SSRN: https://ssrn.com/abstract=2404322

Christian Ebeke (Contact Author)

Centre d’Etudes et de Recherches sur le Développement International, CERDI-CNRS ( email )

65 Boulevard Francois Mitterrand
63000 Clermont-Ferrand Cedex 1
France

Yinqiu Lu

International Monetary Fund ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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