Do Bond Markets Reward Transparency?
Posted: 17 Feb 2005
Date Written: January 2005
This paper studies whether transparency (measured by accuracy and frequency of macroeconomic information released to the public) leads to lower borrowing costs in sovereign bond markets. We analyze the data generated during the 1999-2002 period, when the IMF instituted three new ways for countries to increase their transparency. The procedure governing the actual implementation of the reforms enables us to control for endogeneity bias. We find that countries experience a substantial decline in borrowing costs when they choose to become more transparent. The magnitude of the decline is inversely related to the initial level of transparency and the size of the debt market. Finally, we use evidence from high-frequency data to corroborate the finding that the reforms indeed led to better-informed markets.
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