The Relationship Between Sovereign Spreads and International Reserves: Does the Exchange Rate Regime Matter?

International reserves have been put forward as an important factor affecting sovereign spreads in the literature. This article empirically analyzes whether the relationship between international reserves and sovereign spreads depends on exchange rate policy in emerging markets. The analysis is carr...

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Bibliographic Details
Published in:Emerging markets finance & trade 2016-03, Vol.52 (3), p.658-673
Main Author: Gumus, Inci
Format: Article
Language:English
Subjects:
Classification
Emerging markets
exchange rate regimes
Foreign exchange rates
international reserves
REGULAR ARTICLES
Reserves
Sovereign debt
sovereign spreads
Spread
Studies
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Summary:International reserves have been put forward as an important factor affecting sovereign spreads in the literature. This article empirically analyzes whether the relationship between international reserves and sovereign spreads depends on exchange rate policy in emerging markets. The analysis is carried out using exchange rate classifications based on both the officially declared regimes and the actual exchange rate behavior. The results show that international reserves reduce sovereign spreads for all levels of exchange rate flexibility using both classifications. Reserves have a similar effect on spreads for all exchange rate categories, except for hard pegs, under which the effect is larger.
ISSN:1540-496X
1558-0938
DOI:10.1080/1540496X.2014.998534