Do Local Currency Bond Markets Enhance Financial Stability? Some Empirical Evidence

Donghyun Park, Kwanho Shin, Shu Tian

Research output: Contribution to journalArticle

Abstract

It is widely believed that local currency bond markets (LCBMs) can promote financial stability in emerging markets. In this article, we empirically test such conventional wisdom by analyzing and comparing six measures of financial vulnerability of emerging markets during two episodes of financial stress–global financial crisis and taper tantrum. We find that emerging markets, which experienced greater expansion of their LCBMs between the two episodes, experienced a greater improvement in financial stability, indicating a stabilizing role of LCBMs. Our evidence indicates that a gradual expansion of bank loans but not stock market development may also contribute to financial stability.

Original languageEnglish
JournalEmerging Markets Finance and Trade
DOIs
Publication statusAccepted/In press - 2019 Jan 1

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Keywords

  • Bonds
  • E44
  • emerging markets
  • F34
  • F38
  • F42
  • F62
  • financial stability
  • global financial crisis
  • local currency bond markets
  • taper tantrum

ASJC Scopus subject areas

  • Finance
  • Economics, Econometrics and Finance(all)

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