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The COVID-19 shock and long-term interest rates in emerging market economies

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  • Janus, Jakub

Abstract

Motivated by a divergent behavior of long-term sovereign bond yields across emerging market economies in the onset of the COVID-19 pandemic, we employ the Bayesian model averaging to uncover the country-specific factors that explain those differences. The most pronounced determinants of a country’s vulnerability to the COVID-19 shock were: (a) low GDP dynamics and (b) high sensitivity of bond yields to VIX in the period preceding the pandemic. Our results speak to the role of growth fundamentals in building-up the exposure to crises in emerging markets. They also signify a persistent differentiation of emerging economies by international investors.

Suggested Citation

  • Janus, Jakub, 2021. "The COVID-19 shock and long-term interest rates in emerging market economies," Finance Research Letters, Elsevier, vol. 43(C).
    • Handle: RePEc:eee:finlet:v:43:y:2021:i:c:s154461232100057x
    DOI: 10.1016/j.frl.2021.101976
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    References listed on IDEAS

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    Cited by:

    1. Xu, Yingying & Lien, Donald, 2022. "COVID-19 and currency dependences: Empirical evidence from BRICS," Finance Research Letters, Elsevier, vol. 45(C).
    2. Andrea Bucci, 2022. "A smooth transition autoregressive model for matrix-variate time series," Papers 2212.08615, arXiv.org.
    3. Janus, Jakub, 2022. "Cross-border flights to safe assets in bond markets: evidence from emerging market economies," MPRA Paper 113875, University Library of Munich, Germany.
    4. Iyer, Subramanian Rama & Simkins, Betty J., 2022. "COVID-19 and the Economy: Summary of research and future directions," Finance Research Letters, Elsevier, vol. 47(PB).
    5. Janus, Jakub, 2023. "Flights to safe assets in bond markets: Evidence from emerging market economies," Journal of International Money and Finance, Elsevier, vol. 139(C).
    6. Francisco Jareño & Ana Escribano & Zaghum Umar, 2023. "The impact of the COVID-19 outbreak on the connectedness of the BRICS’s term structure," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-12, December.
    7. Alina Źróbek-Różańska & Marek Ogryzek & Anna Źróbek-Sokolnik, 2022. "Creating a Healthy Environment for Children: GIS Tools for Improving the Quality of the Social Welfare Management System," IJERPH, MDPI, vol. 19(12), pages 1-19, June.
    8. Feng Wang & Min Wu, 2021. "The Impacts of COVID-19 on China’s Economy and Energy in the Context of Trade Protectionism," IJERPH, MDPI, vol. 18(23), pages 1-23, December.

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    More about this item

    Keywords

    COVID-19; Emerging market economies; Bond markets; Global risk; Bayesian model averaging;
    All these keywords.

    JEL classification:

    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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