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The Role of Foreign Currency Deposits, and the Impacts of External Shocks on CDS Spreads for EMEs (in Korean)

Author

Listed:
  • Hosung Jung

    (Economic Research Institute, The Bank of Korea)

  • Woo Joon Myung

    (Economic Research Institute, The Bank of Korea)

Abstract

This paper examines whether foreign currency deposits help to mitigate the negative impacts of external shocks coming from major advanced economies, such as the global financial crisis. Our empirical analysis focuses on 17 emerging market economies, with quarterly data covering the period from September 2005 to September 2013, using dynamic panel model. The results show that the shock-absorption effects of foreign currency deposits depend upon countries' foreign exchange soundness. Specifically, countries having strong foreign exchange soundness can utilize foreign currency deposits to alleviate the rises in sovereign credit swap spreads caused by external shocks. For countries with weak foreign exchange soundness, however, the impacts of external shocks on their sovereign credit swap spreads do not decrease with the holding of foreign currency deposits. This is the first paper to analyse the effectiveness of foreign currency deposits in absorbing external shocks using country-level panel data. Its findings can provide useful implications for EME policy authorities in their utilizations of various policies to address external shocks.

Suggested Citation

  • Hosung Jung & Woo Joon Myung, 2016. "The Role of Foreign Currency Deposits, and the Impacts of External Shocks on CDS Spreads for EMEs (in Korean)," Economic Analysis (Quarterly), Economic Research Institute, Bank of Korea, vol. 22(2), pages 90-115, June.
    • Handle: RePEc:bok:journl:v:22:y:2016:i:2:p:90-115
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    More about this item

    Keywords

    external shocks; foreign currency deposits; CDS spreads;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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