IMF Working Papers

Earthquakes and Emerging Market Sovereign Bond Spreads

By Rabah Arezki, Patrick A. Imam, Kangni R Kpodar, Dao Le-Van

October 24, 2025

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Format: Chicago

Rabah Arezki, Patrick A. Imam, Kangni R Kpodar, and Dao Le-Van. "Earthquakes and Emerging Market Sovereign Bond Spreads", IMF Working Papers 2025, 218 (2025), accessed October 26, 2025, https://doi.org/10.5089/9798229025645.001

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Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

We study how sovereign bond markets respond to earthquakes in emerging markets, using data from 96 countries between 2012 and 2023. While earthquakes raise spreads on average, the effect depends critically on state capacity. In low-capacity countries, spreads rise sharply and persist; in high-capacity states, they remain stable or fall. These effects appear immediately, last several months, and are robust to multiple controls and placebo tests. Our findings suggest that markets interpret disasters not simply as economic shocks but as institutional stress tests, penalizing fragile states. Institutional quality, in this context, acts as disaster insurance.

Subject: Commodity prices, Environment, Macroeconomic risks, Natural disasters, Prices, Public financial management (PFM)

Keywords: Commodity prices, Earthquakes, Global, Macroeconomic risks, Natural disasters, Sovereign Bond Spread, State Capacity

Publication Details

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