Exchange Rate Dynamics and United States Dollar-Denominated Sovereign Bond Prices in Emerging Markets

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dc.contributor.authorADB; Hui, Cho-Hoi; Lo, Chi-Fai; Chau, Po-Hon
dc.date.accessioned2021-10-05T15:01:56Z
dc.date.available2021-10-05T15:01:56Z
dc.date.issued2017-12
dc.descriptionThis paper conducts an empirical test on dollar-denominated sovereign credit spreads in emerging markets, such as the Philippines, to examine their relationship with each country’s exchange rate and the United States Treasury yields. The exchange rates of the currencies of Brazil, Colombia, Mexico, the Philippines, the Russian Federation, and Turkey can explain the pricing of these countries’ United States dollar-denominated sovereign bonds, per empirical analysis. The relationship is particularly strong after the global financial crisis of 2008–2009. A two-factor pricing model is developed with closed-form solutions for the sovereign bonds. The correlated factors in the model—foreign exchange rates and United States risk-free interest rates—follow a double square-root process relevant in a low interest rate environment. The numerical results and associated error analysis show that the model credit spreads can broadly track market credit spreads.
dc.format.extent36
dc.identifier.isbnN/A
dc.identifier.isbnN/A
dc.identifier.issn23136537
dc.identifier.issn23136545
dc.identifier.urihttps://www.adb.org/publications/exchange-rate-dynamics-us-dollar-denominated-sovereign-bond-prices
dc.identifier.urihttps://hdl.handle.net/20.500.14540/5096
dc.subject.otherEconomics
dc.subject.otherFinance sector development
dc.titleExchange Rate Dynamics and United States Dollar-Denominated Sovereign Bond Prices in Emerging Markets
local.publication.countryRegional - Asia and the Pacific

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