Date of Award

6-2022

Document Type

Open Access

Degree Name

Bachelor of Arts

Department

Economics

Second Department

Political Science

First Advisor

Ercan Karadas

Second Advisor

Guillermina Seri

Keywords

Capital Market, Emerging Markets, Credit, Latin American, Russia, Turkey, Brazil, Argentina, U.S. Federal Reserve, U.S. Hegemony

Abstract

This paper, drawing on my Senior Thesis, analyzes how the U.S. Federal Reserve policies impact the economic conditions of countries around the world. In particular, my research focuses on eight countries considered as emerging market economies from 2000 to 2020. Country-specific macroeconomic and political variables help me examine how developing countries alter their short-term targets to avoid volatile spillover from Washington. Moreover, I use each country’s sovereign nominal credit spread to assess its economic conditions, in particular its perceived risk premium or cost of borrowing. The countries examined in my thesis are Argentina, Brazil, Colombia, Mexico, Russia, Korea, Qatar, and Turkey. Using a two-way fixed effect model, I found that U.S. short-term rate hikes and heightened volatility in the S&P 500 increases the nation's cost of borrowing. Poor country-specific underlying macroeconomic conditions drive up the nation's risk premium, seen through a more extensive sovereign credit spread. Correspondingly, elevated domestic social and political vulnerability levels positively impact each nation’s perceived risk alluded to decaying economic conditions. Complementing my econometric empirical results, my thesis provides four country case studies of Argentina, Brazil, Russia, and Turkey, highlighting historical macro management changes in policy targets to hedge against U.S. spillover. Understanding the role of the U.S. political-military hegemony in the context of the global credit cycle is vital, my presentation argues. Otherwise, a shortsighted technocratic perspective from monetary policymakers in Washington could put the landscape of international finance at risk of an eventual collapse.

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Rights Statement

In Copyright - Educational Use Permitted.