The role of macroeconomic variables in sovereign risk
AbstractWe 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 InfoArticle provided by Elsevier in its journal Emerging Markets Review.
Volume (Year): 11 (2010)
Issue (Month): 3 (September)
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Web page: http://www.elsevier.com/locate/inca/620356
Macro-finance Credit risk Affine term structure models Emerging markets;
Other versions of this item:
- Marcos S. Matsumura & José Valentim Vicente, 2009. "The role of macroeconomic variables in sovereign risk," Working Papers Series 196, Central Bank of Brazil, Research Department.
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