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

  • Andrea Fracasso

    ()

    (Department of Economics, University of Trento)

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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File URL: http://repec.graduateinstitute.ch/pdfs/Working_papers/HEIWP22-2007.pdf
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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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  1. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993. "“Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," MPRA Paper 7125, University Library of Munich, Germany.
  2. Alicia García-Herrero & Álvaro Ortiz, 2005. "The role of global risk aversion in explaining Latin American sovereign spreads," Banco de Espa�a Working Papers 0505, Banco de Espa�a.
  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. Hans Genberg, 2003. "Foreign versus domestic factors as sources of macroeconomic fluctuations in Hong Kong," IHEID Working Papers 05-2003, Economics Section, The Graduate Institute of International Studies.
  5. Marcio Garcia & Roberto Rigobon, 2004. "A Risk Management Approach to Emerging Market's Sovereign Debt Sustainability with an Application to Brazilian Data," NBER Working Papers 10336, National Bureau of Economic Research, Inc.
  6. Fernandez-Arias, Eduardo & DEC, 1994. "The new wave of private capital inflows : push or pull?," Policy Research Working Paper Series 1312, The World Bank.
  7. 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.
  8. Canova, Fabio, 2003. "The Transmission of US Shocks to Latin America," CEPR Discussion Papers 3963, C.E.P.R. Discussion Papers.
  9. 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.
  10. Genberg, Hans & Salemi, Michael K. & Swoboda, Alexander, 1987. "The relative importance of foreign and domestic disturbances for aggregate fluctuations in the open economy : Switzerland, 1964-1981," Journal of Monetary Economics, Elsevier, vol. 19(1), pages 45-67, January.
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