2014年-IMF国际货币组织全球_Emerging_Market_Local_Currency_Bond_Yields_and_Foreign_Holdings_in_the_Post_38页_596kb

Summary of "Emerging Market Local Currency Bond Yields and Foreign Holdings in the Post-Lehman Period—a Fortune or Misfortune?"

Core Content

This working paper investigates the impact of foreign holdings on the level and volatility of local currency government bond yields in emerging market countries (EMs) in the post-Lehman period. The study focuses on the period from 2009Q1 to 2013Q1 and uses a panel dataset of 12 EMs with available data on foreign ownership of local currency bonds.

Main Viewpoints

• Foreign Holdings and Bond Yields:
  The paper finds that an increase in foreign holdings of local currency government bonds is associated with a reduction in bond yields. Specifically, a 10 percentage point increase in the share of foreign investors leads to a decrease in yields by 70 to 90 basis points. This effect is statistically significant and robust across various models and specifications.

• Foreign Holdings and Yield Volatility:
  While foreign holdings are associated with lower yields, they are also linked to higher yield volatility, particularly in countries with weak macroeconomic fundamentals. This suggests that foreign investors may contribute to increased market sensitivity to global shocks, which can amplify yield fluctuations.

• Causality and Endogeneity:
  The study uses an instrumental variable (IV) approach to address potential endogeneity issues. The geographical distance to major offshore financial centers is used as an instrumental variable, exploiting the idea that physical distance affects the flow of capital. The IV strategy confirms the causal relationship between foreign holdings and yields, and the results are robust even after controlling for serial correlation, outliers, and other endogeneity concerns.

• Non-Linear Effects:
  The paper explores non-linear effects of foreign holdings on yield volatility, suggesting that the impact of foreign holdings is conditional on macroeconomic fundamentals. For example, countries with weaker fundamentals are more vulnerable to yield volatility due to higher dependence on foreign capital.

• Policy Implications:
  The findings indicate that the benefits of foreign holdings (lower yields) are conditional on economic performance, and that volatility is more pronounced in less stable economies. This implies that policymakers should be cautious about the potential risks associated with increased foreign participation, especially in countries with fragile macroeconomic positions.

Key Information

Empirical Design

• Model for Yield Level:
  The paper estimates the effect of foreign holdings on the level of local currency bond yields using a fixed-effects panel model with control variables such as central bank policy rates, inflation, GDP growth, and global risk indicators like the VIX.

• Model for Yield Volatility:
  The effect of foreign holdings on yield volatility is analyzed using a similar fixed-effects model, with the volatility indicator being the standard deviation of weekly yield changes over a 12-week period.

• Control Variables:
  The control variables include:

  • Country-specific factors: policy rates, inflation, GDP growth, current account balance, foreign exchange reserves, and public debt.
  • Global factors: VIX, U.S. federal funds rate, and 2-year forward exchange rates.

Data

• The data is sourced from DataStream, Haver Analytics, Asianbondonline, and the IMF World Economic Outlook.
• The sample includes 12 EMs with quarterly data from 2009Q1 to 2013Q1.
• Some variables (e.g., forward exchange rate volatility) are only available for 10 out of 12 EMs due to data constraints.

Robustness Checks

• Serial Correlation:
  The paper controls for serial correlation in residuals by using a panel fixed-effects model with AR(1) process.

• Outliers:
  The model is re-estimated after excluding influential observations (those with residuals more than two standard deviations from zero), and the results remain consistent.

• Endogeneity:
  The IV strategy is used to address endogeneity, with the geographical distance to offshore financial centers as the main instrument. The distance variable is time-invariant within a country, but its quarter-by-quarter impact on foreign holdings is considered to add a time-varying dimension.

Case Study: Poland

• Foreign Holdings in Poland:
  Poland experienced a significant increase in foreign holdings of local currency bonds, reaching 37% in April 2013 from about 14% in early 2009.

• Methodology:
  The study uses error-correction models and GARCH frameworks to analyze the short-term and long-term effects of foreign holdings on yield levels and volatility.

• Findings:

  • The increase in foreign holdings is associated with lower but volatile yields in Poland.
  • This contrasts with the pre-crisis study by Peiris (2010), which found no significant association between foreign holdings and yield volatility in Poland.
  • The positive association between yield volatility and foreign holdings in Poland, despite its strong fundamentals, suggests that foreign holdings can still contribute to volatility, possibly due to market-specific dynamics or increased global risk aversion.

Conclusion

The paper concludes that foreign holdings of local currency bonds in EMs have a negative and significant effect on the level of yields, but a positive and significant effect on yield volatility, especially in countries with weak macroeconomic fundamentals. The geographical distance to offshore financial centers is used as an instrumental variable to establish causality. The case study on Poland supports the cross-country findings, highlighting that even countries with strong fundamentals can experience increased yield volatility due to foreign holdings.

The results suggest that while foreign participation can provide benefits such as lower borrowing costs, it also brings risks of increased market sensitivity and volatility, which policymakers should be aware of when considering international capital flows.