Domestic Currency Debt As A Soft Shield Against Global Rate Shocks In Emerging Economies

Abstract

I want to see if a larger share of domestic-currency debt lets emerging markets react strongly to global interest rate shocks when the overall environment stays tough. Many countries have mixed debt. When global rates jump fast the spreads, on the domestic-currency debt often go up sharply and sometimes in ways that're hard to predict. The idea is that a bigger share of domestic-currency debt could change the reaction of emerging markets. I use panel data from sources to look at how the spreads on the domestic-currency debt move, in an external environment. I do not claim that my model captures every factor. The findings show a calming influence. The calming influence becomes clearer in the countries that have reached a stage of debt growth. The calming influence is modest and imperfect. The calming influence remains fairly consistent across the model configurations despite some inconsistencies, in the data.