| We study the impact of currency mismatches on changes in emerging sovereign bond spreads using new currency mismatch indicators, both at the aggregate level and for the banking sector, for 25 emerging countries. We use first a panel data estimation of EMBI secondary market spreads and a set of standard variables related to debt sustainability to construct a basic model of determinants of emerging sovereign spreads. Then we include our currency mismatch indicators to test their relevance in emerging spread determination. We find these indicators play a significant role for the determination of emerging sovereign bond spreads. Finally, we can conclude that these indicators should be considered more consistently in analyses of emerging market vulnerabilities. |
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