Discussion paper

DP18757 Original Sin Redux: Role of Duration Risk

We highlight the role of duration and exchange rate risks on portfolio flows by using a unique and comprehensive database of US investor flows into emerging market government bonds denominated in local currency. Borrowing long-term mitigates roll-over risk but amplifies valuation changes that further interact with currency movements. Our analysis highlights the double-edged nature of long-term borrowing and draws attention to market stress dynamics due to strategic complementarities among mutual fund investors.


Bertaut, C, V Bruno and H Shin (2024), ‘DP18757 Original Sin Redux: Role of Duration Risk‘, CEPR Discussion Paper No. 18757. CEPR Press, Paris & London. https://cepr.org/publications/dp18757