Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/108063 
Year of Publication: 
2004
Series/Report no.: 
IEHAS Discussion Papers No. MT-DP - 2004/3
Publisher: 
Hungarian Academy of Sciences, Institute of Economics, Budapest
Abstract: 
It is frequently claimed that the expected yield on emerging market bonds commands a premium. Here we investigate the sources of this phe-nomenon. A stochastic general equilibrium model of a small open economy is analyzed numerically to derive conditions for interest rate premia. The novelty of our approach is to attack the problem form the point of view of state dependent policy mixes. The main lessons include: if positive premia were universal, then 1. nominal rigidity should be important, 2. monetary authorities might have a current account stabilization motive, and 3. taste shocks possibly play some role in emerging markets.
Document Type: 
Working Paper

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