The Influence of US Dollar Funding Conditions on Asian Financial Markets
Publication | March 2021
Amid high reliance on United States (US) dollar-denominated funding, this paper finds changes in exchange rates affect sovereign credit risk premiums in selected emerging Asian economies.
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It is observed that a depreciation of the domestic currency against the US dollar leads to a widening of the sovereign bond spread. This finding suggests a significant relationship between US dollar funding exposure, US dollar liquidity conditions, and domestic financial conditions in some emerging Asian economies. Yet, given that the magnitude of the effects varies across economies, the paper notes that policy prescriptions must be tailored individually.
Contents
- Introduction
- Review of Related Literature
- United States Dollar Funding Conditions in Emerging Asian Economies
- How Bilateral United States Dollar Exchange Rates Affect Financial Conditions
- Conclusion and Policy Considerations
- Appendixes
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