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    Alley-side Pickup: 10am - 7pm

    3038 Hennepin Ave Minneapolis, MN
    612-822-4611

Open Daily: 10am - 10pm | Alley-side Pickup: 10am - 7pm
3038 Hennepin Ave Minneapolis, MN
612-822-4611
International Finance Discussion Papers: Exchange Rate Policy and Sovereign Bond Spreads in Developing Countries

International Finance Discussion Papers: Exchange Rate Policy and Sovereign Bond Spreads in Developing Countries

Jahjah, Samir
United States Federal Reserve Board
Et Al

Paperback

General Political Science

ISBN10: 1288723474
ISBN13: 9781288723478
Publisher: Bibliogov
Published: Feb 6 2013
Pages: 40
Weight: 0.20
Height: 0.08 Width: 7.44 Depth: 9.69
Language: English

This paper empirically analyzes how exchange rate policy affects the issuance and pricing of international bonds for developing countries. We find that countries with less flexible exchange rate regimes pay higher sovereign bond spreads and are less likely to issue bonds. Quantitatively, changing a free-floating regime to a fixed regime decreases the likelihood of bond issuance by 4.6% and increases the bond spread by 1.3% on average. Furthermore, countries with real exchange rate overvaluation have higher bond spreads and higher bond issuance probabilities. Moreover, such positive effects of real exchange rate overvaluation tend to be magnified for countries with fixed exchange rate regimes. Our results suggest that choosing a less flexible exchange rate regime in general leads to higher borrowing costs for developing countries, especially when their currencies are overvalued.

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