Skip to Main Navigation

Do Local Currency Bond Markets Enhance Financial Stability? Some Empirical Evidence

November 23, 2017

DECRG Kuala Lumpur Seminar Series

  • It is widely believed that local currency bond markets (LCBMs) can promote financial stability in developing countries. For instance, they can help mitigate the currency and maturity mismatch that contributed to the outbreak of the Asian financial crisis of 1997-1998. In this paper, we empirically test such conventional wisdom on the stabilizing effect of LCBMs. To do so, we analyze and compare the financial vulnerability of developing countries during two episodes of financial stress – global financial crisis and taper tantrum. We find that countries which experienced greater expansion of their LCBMs between the two episodes experienced a greater reduction of exchange rate depreciation, indicating a stabilizing role of LCBMs. Our evidence indicates that a gradual expansion of bank loans may also contribute to financial stability. On the other hand, we do not find any evidence of a stabilizing effect of stock market development.

    Download the paper

  • Dr. Donghyun Park

    Principal Economist, Economic Research ad Regional Cooperation Department (ERCD), Asian Development Bank

    Dr. Donghyun Park is currently Principal Economist at the Economic Research and Regional Cooperation Department (ERCD) of the Asian Development Bank (ADB), which he joined in April 2007. Prior to joining ADB, he was a tenured Associate Professor of Economics at Nanyang Technological University in Singapore. Dr. Park has a Ph.D. in economics from UCLA, and his main research fields are international finance, international trade, and development economics. His research, which has been published extensively in journals and books, revolves around policy-oriented topics relevant for Asia’s long-term development, including middle-income trap, service sector development, and financial sector development. Dr. Park plays a leading role in the production of Asian Development Outlook, ADB’s biannual flagship publication on macroeconomic issues, and leads the team that produces Asia Bond Monitor, ADB’s quarterly flagship report on emerging Asian bond markets.

    Dr. Shu Tian

    Economist, Economic Research and Regional Cooperation Department (ERCD), Asian Development Bank

    Dr. Shu Tian is an Economist at the Economic Research and Regional Cooperation Department (ERCD) of the Asian Development Bank (ADB). Prior to joining ADB, she was an Associate Professor of Finance at Fudan University in China. Her main research interests include financial services and institution, investments, and empirical asset pricing. Her research has been published in academic journals on topics relating to financial asset pricing, portfolio allocation and financial market development. Dr. Tian works in the teams that produce Asian Development Outlook and Asia Bond Monitor. Her team also maintains AsianBondsOnline, an online bond market data portal for ASEAN+3 bond markets.


  • WHEN: Thursday, November 23, 2017; 12:30-2:00PM
  • WHERE: World Bank Malaysia Office, Level 3, Sasana Kijang, No. 2, Jalan Dato’ Onn
  • RSVP: Kindly RSVP by Wednesday, November 22, 2017