Local Currency Bond Markets
We analyze the development of 49 local bond markets. Our main finding is that policies and laws matter: Countries with stable inflation rates and strong creditor rights have more developed local bond markets and rely less on foreign-currency-denominated bonds. The results suggest that "original sin" is a misnomer. Emerging economies are not inherently dependent upon foreign-currency debt. Rather, by improving policy performance and strengthening institutions they may develop local currency bond markets, reduce their currency mismatch, and lessen the likelihood of future crises.
Burger is Associate Professor at the Sellinger School of Business and Management at Loyola College in Maryland. Warnock is Associate Professor at the Darden Graduate School of Business at the University of Virginia. The authors thank Thomas Jans and Denis Petre for invaluable assistance with data and Jillian Faucette, Sara Holland, and Alex Rothenberg for research assistance. We also thank for helpful comments an anonymous referee, Morris Goldstein, Bill Helkie, Olivier Jeanne, Steve Kamin, Ross Levine, Ugo Panizza, Vincent Reinhart, Charles Thomas, Joachim Voth, Jon Wongswan, and seminar participants at Berkeley Workshop on Global Balances and Asian Financial Markets, CEPR/Gerzensee Conference on International Capital Flows, Darden Conference on Investing in Emerging Markets, IF Monday Workshop, IMF Research Seminar, Loyola College, Towson University, Trinity College International Bond and Debt Market Integration Conference, and University of North Carolina. All errors are our own. John Burger acknowledges support from the Sellinger School Junior Sabbatical Program. Warnock thanks the Darden School Foundation for generous support. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.
Burger, John D., and Francis E. Warnock, 2006. "Local Currency Bond Markets," IMF Staff Papers 53 (Special Issue): 115-132. citation courtesy of