Dollarization and the relationship between EMBI and fundamentals in Latin American Countries

Authors

  • María Lorena Mari del Cristo Department of Economics, Universitat de Barcelona
  • Marta Gómez-Puig Department of Economics and Riskcenter, Universitat de Barcelona

Keywords:

Exchange rate regime, Emerging Markets Bond Index, Cointegrated VAR, Latin American countries, Emerging markets, Dollarization

Abstract

This paper presents empirical evidence on the interrelationship that exists between the evolution of the Emerging Markets Bonds Index (EMBI) and some macroeconomic variables in seven Latin American countries; two of them (Ecuador and Panama), full dollarized. We make use of a Cointegrated Vector framework to analyze the short run effects from 2001 to 2009. The results suggest that EMBI is more stable in dollarized countries and that its evolution influences economic activity in non-dollarized economies; suggesting that investors’ confidence might be higher in dollarized countries where real and financial economic evolution are less vulnerable to external shocks than in non-dollarized ones.

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Published

2017-01-01

Issue

Vol. 40 No. 112 (2017): Pages 1-82 (January-April 2017)

Section

Articles

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