Date Added: Aug 2009
With an increasingly integrated global financial system, the authors frequently observe that shocks to individual asset markets affect financial markets worldwide. The aim of this paper is to quantify the co movements between bond markets in the US and emerging market economies using daily data from prior to the East Asian crisis through to the early stages of the current global financial crisis. They exploit the changing volatility of the data to fully identify a structural VAR, without imposing ad hoc restrictions. They find that shocks that widen Emerging Market sovereign debt (EMBIG) spreads have a negative effect on US interest rates in the short run, while shocks that increase US interest rates raise EMBIG spreads over longer horizons.