Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/298141 
Year of Publication: 
2023
Series/Report no.: 
ADB Economics Working Paper Series No. 695
Publisher: 
Asian Development Bank (ADB), Manila
Abstract: 
Increasing oil and food prices and persistent supply chain disruptions in 2022 contributed to inflation in advanced economies that had not been seen in decades. This pushed up interest rates, which in turn led to higher yields in global bond markets. This study examines two distinct channels that transmit advanced economy inflation to emerging market bond yields by employing a novel multivariable smooth transition autoregressive- vector autoregressive (STAR-VAR) model. Our empirical analysis yields two new key findings. First, advanced economy inflation has a significant effect on regime changes between expansion and contraction in emerging market bond yields. Second, the shortrun 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 both regimes but stronger in a bond yield's contraction regime. This suggests that the response of emerging market bond yields to advanced economy inflation does not necessarily follow a simple Fisher equation relationship.
Subjects: 
bond yields
inflation
advanced economy
emerging market
regime change
smooth transition autoregressive model
JEL: 
F14
C40
C51
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Working Paper

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