How Does Inflation in Advanced Economies Affect Emerging Market Bond Yields? Empirical Evidence from Two Channels
Sei-Wan Kim,
Donghyun Park,
Shu Tian
Abstract:This study uses multivariable smooth transition autoregressive–vector autoregressive (STAR–VAR), a novel model to explore how inflation in advanced economies affects emerging market bond yields. Results reveal two key findings. First, advanced economy inflation has a significant effect on emerging market bond yields. Second, the short-run effect of advanced economy inflation on the bond yields of emerging markets is asymmetric between the expansion and contraction regimes. The effect is mostly positive in bot… Show more
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