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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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  • Andrea Fracasso

    ()
    (Department of Economics, University of Trento)

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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Bibliographic Info

Paper provided by Economics Section, The Graduate Institute of International Studies in its series IHEID 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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Keywords: External factors; Credit spreads; External debt; Fiscal dominance.;

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  1. Fabio Canova, 2005. "The transmission of US shocks to Latin America," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 20(2), pages 229-251.
  2. Alicia Garcia Herrero & Alvaro Ortiz, 2005. "The Role Of Global Risk Aversion In Explaining Latin American Sovereign Spreads," International Finance 0503005, EconWPA.
  3. David O. Cushman & Tao Zha, 1995. "Identifying monetary policy in a small open economy under flexible exchange rates," Working Paper 95-7, Federal Reserve Bank of Atlanta.
  4. Márcio Gomes Pinto Garcia & Roberto Rigobon, 2004. "A Risk Management Approach to Emerging Market’s Sovereign Debt Sustainability with an Application to Brazilian Data," Textos para discussão 484, Department of Economics PUC-Rio (Brazil).
  5. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
  6. Evan Tanner & Alberto Ramos, 2003. "Fiscal sustainability and monetary versus fiscal dominance: evidence from Brazil, 1991-2000," Applied Economics, Taylor & Francis Journals, vol. 35(7), pages 859-873.
  7. Fernandez-Arias, Eduardo, 1996. "The new wave of private capital inflows: Push or pull?," Journal of Development Economics, Elsevier, vol. 48(2), pages 389-418, March.
  8. Amadou N. R. Sy, 2001. "Emerging Market Bond Spreads and Sovereign Credit Ratings," IMF Working Papers 01/165, International Monetary Fund.
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Cited by:
  1. María Lorena Mari del Cristo & Marta Gómez-Puig, 2014. "Dollarization and the relationship between embi and fundamentals latin american countries," Working Papers 14-05, Asociación Española de Economía y Finanzas Internacionales.
  2. Banerji, Sanjay & Ventouri, Alexia & Wang, Zilong, 2014. "The sovereign spread in Asian emerging economies: The significance of external versus internal factors," Economic Modelling, Elsevier, vol. 36(C), pages 566-576.
  3. Lorena Mari del Cristo & Marta Gómez-Puig, 2014. "Dollarization and the relationship between EMBI and fundamentals in Latin American countries," Working Papers 2014-02, Universitat de Barcelona, UB Riskcenter.

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