NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Effects of U.S. Monetary Policy on Emerging Market Economies' Sovereign and Corporate Bond Markets

John D. Burger, Francis E. Warnock, Veronica Cacdac Warnock

NBER Working Paper No. 23628
Issued in July 2017
NBER Program(s):   IFM

We analyze the effect of the US Federal Reserve’s monetary policy on EME sovereign and corporate bond markets by focusing on two dimensions: the evolution of the structure (size and currency composition) of the bond markets and their allocations within the bond portfolios of US investors. Global factors, particularly the level of long-term US Treasury yields, matter. Across all specifications, when US long-term interest rates were low (i) EMEs issued more sovereign and private-sector local currency bonds and more private-sector foreign currency bonds and (ii) US investment in EME sovereign bonds (both local currency and USD-denominated) increased. In contrast, after controlling for the level of US long-term interest rates, measures that attempt to isolate the effects of US unconventional monetary policy are often statistically insignificant in our analysis. Local factors matter too: The local currency government bond markets in countries with stronger regulatory quality/creditor rights are larger and attract relatively more US investment. Finally, consistent with Burger et al. (2017), we find that the well-known home bias phenomenon is at least in part a home currency bias: US investors exhibit no home bias against some countries’ USD-denominated bonds, whereas for local currency bonds the familiar home bias is very present.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w23628

 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us