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Sovereign credit default swaps and the macroeconomy

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  • Yang Liu
  • Bruce Morley

Abstract

The aim of this study is to determine whether the domestic economy as represented by the interest rate, the international economic status as represented by the exchange rate or both determine sovereign Credit Default Swap (CDS) spreads. Using a Vector Autoregressive (VAR) and Granger noncausality tests, the results suggest that it is the exchange rate that has the most important effect on sovereign CDS spreads, with domestic interest rates having only a limited effect. There is also some evidence of causality running from the CDS spread to the exchange rate.

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File URL: http://hdl.handle.net/10.1080/13504851.2011.568390
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Bibliographic Info

Article provided by Taylor and Francis Journals in its journal Applied Economics Letters.

Volume (Year): 19 (2012)
Issue (Month): 2 (February)
Pages: 129-132

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Handle: RePEc:taf:apeclt:v:19:y:2012:i:2:p:129-132

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  1. Granger, Clive W.J. & Huang, Bwo-Nung & Yang, Chin W., 1998. "A Bivariate Causality between Stock Prices and Exchange Rates: Evidence from Recent Asia Flu," University of California at San Diego, Economics Working Paper Series qt9bk607p6, Department of Economics, UC San Diego.
  2. Skinner, Frank S. & Townend, Timothy G., 2002. "An empirical analysis of credit default swaps," International Review of Financial Analysis, Elsevier, vol. 11(3), pages 297-309.
  3. Frank Skinner & Antonio Diaz, 2002. "An Empirical Study of Credit Default Swaps," ICMA Centre Discussion Papers in Finance icma-dp2003-04, Henley Business School, Reading University, revised Jan 2003.
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