Do Macro-economic Fundamentals Price Sovereign CDS Spreads of Emerging Economies?
This paper studies the extent to which macro-economic variables govern the dynamics of emerging markets sovereign CDS spreads. I propose a structural model of sovereign credit risk based on observed exports, imports and international reserves. Using these macro fundamentals, I define a country's ability to pay as the maximum amount of foreign currency available for repayment of non-domestic debt. The joint dynamics of the ability to pay and a sovereign's outstanding external debt determine the level of country default risk and thus the CDS spreads. I implement the model for a sample of 6 emerging economies for a period covering the recent financial crisis. A calibrated version of the model captures the widening of sovereign spreads during the crisis and provides a good _t for the time-series dynamics of CDS spreads. Lastly, I use the model to measure the market-implied level of country liabilities. On average, the value of implied external debt is 13% larger than the reported level of debt.
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
|Date of creation:||Jun 2010|
|Contact details of provider:|| Postal: 3404 Steinberg Hall-Dietrich Hall, 3620 Locust Walk, Philadelphia, PA 19104-6367|
Web page: http://finance.wharton.upenn.edu/weiss/papers.html
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:ecl:upafin:10-5. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.