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How Do Political Factors Shape the Bank Risk–Sovereign Risk Nexus in Emerging Markets?
Author(s) -
Eichler Stefan
Publication year - 2017
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/rode.12274
Subject(s) - nexus (standard) , sovereignty , economics , solvency , politics , monetary economics , constraint (computer aided design) , political risk , bond , emerging markets , financial system , credit risk , government (linguistics) , macroeconomics , finance , political science , market liquidity , mechanical engineering , computer science , law , embedded system , engineering , linguistics , philosophy
This paper studies the role of political factors for determining the impact of banking sector distress on sovereign bond yield spreads for a sample of 19 emerging market economies in the period 1994–2013. Using interaction models, I find that the adverse impact of banking sector distress on sovereign solvency is less pronounced for countries with a high degree of political stability, a high level of power sharing within the government coalition, a low level of political constraint within the political system, and for countries run by powerful and effective governments. The electoral cycle pronounces the bank risk–sovereign risk transfer.