Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/298134 
Year of Publication: 
2023
Series/Report no.: 
ADB Economics Working Paper Series No. 688
Publisher: 
Asian Development Bank (ADB), Manila
Abstract: 
This study investigates how development of the local currency (LCY) bond market brings stability in the financial market. The analysis is based on annual economy panel data set for 1989-2020. The main findings are as follows. First, exchange rate volatility is lower during crisis periods if an economy has a more developed LCY bond market. Second, a greater share of LCY bonds and a greater share of bonds with long-term maturities have a stabilizing effect on exchange rate volatility during normal times. Lastly, a developed LCY bond market can serve as a buffer against monetary policy shocks emanating from the United States. The empirical evidence in this study implies that emerging economies need to consider designing policies to bolster development of LCY bond markets.
JEL: 
E22
G31
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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