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The role of foreign and domestic factors in the evolution of the Brazilian EMBI spread and debt dynamics

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Author Info
Andrea Fracasso () (Department of Economics, University of Trento)

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Abstract

This paper examines the relative importance of global and domestic factors as a source of macroeconomic fluctuations in Brazil from 1995 to 2004. US and Brazilian credit spreads are encompassed in a near-VAR model, including the main debt-related domestic variables. The US corporate bond spread is used as a measure of international risk aversion. The relative importance of global factors to the volatility of Brazilian domestic series is singled out by means of a partial identification strategy, whereby foreign variables are treated as block exogenous. The estimates reveal that foreign investors’ appetite for risk is an important determinant of the volatility of the macroeconomic Brazilian series and affects the monetary policy transmission channel, as recently suggested by Olivier Blanchard.

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Publisher Info
Paper provided by Economics Section, The Graduate Institute of International Studies in its series HEI Working Papers with number 22-2007.

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Length: 62
Date of creation: Sep 2006
Date of revision: Jul 2007
Handle: RePEc:gii:giihei:heiwp22-2007

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Related research
Keywords: External factors; Credit spreads; External debt; Fiscal dominance.;

Find related papers by JEL classification:
F34 - International Economics - - International Finance - - - International Lending and Debt Problems
F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
O23 - Economic Development, Technological Change, and Growth - - Development Planning and Policy - - - Fiscal and Monetary Policy in Development
E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles

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  1. Cushman, David O. & Zha, Tao, 1997. "Identifying monetary policy in a small open economy under flexible exchange rates," Journal of Monetary Economics, Elsevier, vol. 39(3), pages 433-448, August. [Downloadable!] (restricted)
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  2. Amadou N. R. Sy, 2001. "Emerging Market Bond Spreads and Sovereign Credit Ratings: Reconciling Market Views with Economic Fundamentals," IMF Working Papers 01/165, International Monetary Fund. [Downloadable!]
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