Does Sdds Subscription Reduce Borrowing Costs for Emerging Market Economies

Abstract

This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.Does macroeconomic data transparency-as signaled by subscription to the IMF's Special Data Dissemination Standard (SDDS)-help reduce borrowing costs in private capital markets? This question is examined using detailed data on new issues of sovereign foreign currency-denominated (U.S. dollar, yen, and euro) bonds for several emerging market economies. Panel econometric estimates indicate that spreads on new bond issues declined by about 75 basis points following SDDS subscription. JEL Classification Numbers: C22, F33, F34

IMF surveillance and financial markets—A political economy analysis

“…We use the JP Morgan's Emerging Market Bond Index (EMBI), which consists of daily values of country-specific portfolios of dollar-denominated sovereign or quasi-sovereign debt instruments, to test the impact of the publication of PINs on the cost of funding of countries. Moreover, we collected macroeconomic variables that have been found to be determinants of country's sovereign spreads (see Glennerster and Shin, 2004;Cady, 2004;Remolona et al, 2007). These are real economic growth, the unemployment rate, the inflation rate, the government balance, the foreign exchange reserves of the central bank, the short-term external debt and the PPP exchange rate.…”

Emerging market bond returns—An investor perspective

“…As the reporting periodicity is monthly (weekly is encouraged) for foreign reserves, in a currency crisis published data may quickly become obsolete. SDDS subscription has shown to materially lower borrowing costs for emerging market economies (Cady, 2004). The new fund will be available to regional and international investors as a bond index fund and country sub-funds; both funds contribute to a 'bailing-in' of bond issuers.…”

Exchange Rate Volatility and Reserves Transparency

“…In particular, for the Reserves Template, the G-10 Working Group considered that greater transparency on foreign currency liquidity would help to remove a source of financial instability (see BIS, 1998, p. 1). The literature on the market efficiency benefits of standards and codes for data dissemination is relatively new, but empirical evidence indicating that emerging market subscribers to the SDDS face lower borrowing costs than nonsubscribers is accumulating (IIF, 2002;Christofides, Mulder, and Tiffin, 2003;Glennerster and Shin, 2003;Cady, 2005;and Cady and Pellechio, 2006). This paper focuses on foreign exchange markets and investigates whether the dissemination of Reserves Template data can be associated with changes in the volatility of nominal exchange rates.…”