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The role of macroeconomic variables in sovereign risk

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Author Info

  • Matsumura, Marco S.
  • Vicente, José Valentim Machado

Abstract

We use a dynamic term structure model with default and observable factors to study the interaction between macro variables and the Brazilian sovereign yield curve. We also calculate the default probabilities implied from the estimated model and the impact of macro shocks on those probabilities. Our results indicate that the VIX is the most important macro factor affecting short-term bonds and default probabilities, while the American short-term rate is the most important factor affecting the long-term default probabilities. Regarding the domestic variables, only the slope of the local yield curve presents significant explanatory power for the sovereign rates and default probabilities.

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Bibliographic Info

Article provided by Elsevier in its journal Emerging Markets Review.

Volume (Year): 11 (2010)
Issue (Month): 3 (September)
Pages: 229-249

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Handle: RePEc:eee:ememar:v:11:y:2010:i:3:p:229-249

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Web page: http://www.elsevier.com/locate/inca/620356

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Keywords: Macro-finance Credit risk Affine term structure models Emerging markets;

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References

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Cited by:
  1. Sottile, Pedro, 2013. "On the political determinants of sovereign risk: Evidence from a Markov-switching vector autoregressive model for Argentina," Emerging Markets Review, Elsevier, vol. 15(C), pages 160-185.
  2. Moura, Marcelo L. & Gaião, Rafael L., 2014. "Impact of macroeconomic surprises on the Brazilian yield curve and expected inflation," The North American Journal of Economics and Finance, Elsevier, vol. 27(C), pages 114-144.

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