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Assessing the Impact of Covid-19 Pandemic on Emerging Market Economies’ (EMEs) Sovereign Bond Risk Premium and Fiscal Solvency

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  • Menna Bizuneh

    (Pitzer College)

  • Menelik Geremew

    (Kalamazoo College)

Abstract

The current globalized economic environment has made Emerging Market Economies (EMEs) highly exposed to global economic shocks. During the Covid-19 pandemic, EMEs have been facing increased health costs and heightened demand for fiscal stimulus. In addition, most EMEs experienced currency depreciation, reversal in capital flow, decrease in global demand and significant decline in domestic revenue, leading to a potential increase in sovereign bond risk premiums (SRP). Using dynamic panel estimations and focusing on 12 countries, we find that the Covid-19 pandemic impacts SRP primarily through GDP growth and political stability indicators. In addition, we find the real exchange rate and net export to GDP ratio have a statistically significant impact on sovereign bond risk premium.

Suggested Citation

  • Menna Bizuneh & Menelik Geremew, 2021. "Assessing the Impact of Covid-19 Pandemic on Emerging Market Economies’ (EMEs) Sovereign Bond Risk Premium and Fiscal Solvency," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 47(4), pages 519-545, October.
    • Handle: RePEc:pal:easeco:v:47:y:2021:i:4:d:10.1057_s41302-021-00201-y
    DOI: 10.1057/s41302-021-00201-y
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    1. Alexandre Olbrecht, 2021. "Human Suffering and Natural Experiments: How Empirical Economics can unmask the devastation of Covid-19," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 47(4), pages 461-463, October.
    2. José Antonio Núñez-Mora & Roberto Joaquín Santillán-Salgado & Mario Iván Contreras-Valdez, 2022. "COVID Asymmetric Impact on the Risk Premium of Developed and Emerging Countries’ Stock Markets," Mathematics, MDPI, vol. 10(9), pages 1-36, April.
    3. Candelon, Bertrand & Moura, Rubens, 2023. "Sovereign yield curves and the COVID-19 in emerging markets," Economic Modelling, Elsevier, vol. 127(C).

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