Exchange Rate Policy and Sovereign Bond Spreads in Developing Countries

Topics:
Inflation
Tags:
Bond,
Developing Country,
Exchange Rate,
Finance,
Free Trade,
Investment
Source:
International Monetary Fund

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Overview: This report tests the hypothesis of a link between exchange rate policy and sovereign bonds. The main findings are: real exchange rate overvaluation significantly increases sovereign bond issue probability and raises bond spreads; spreads and the likelihood of issuing bonds depend on the exchange rate regime; exchange rate misalignment under a hard peg significantly increases bond spreads; in time of debt crises, exchange rate policy also greatly affects the sovereign bond market, especially through exchange rate overvaluation.

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Format: PDF | Size: 346KB | Date: Nov 2004 | Pages: 36

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