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Oil prices and government bond risk premiums

Author

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  • Herve Alexandre

    () (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

  • Benoist Antonin De

    (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

Abstract

This article analyses the impact of oil price on bond risk premiums issued by emerging economies. No empirical study has yet focussed on the effects of the oil price on government bond risk premiums. We develop a model of credit spread with data from the EMBIG index of seventeen countries, from 1998 to 2008. An analysis in time series has been carried out on each country. Then we use a panel analysis to determine the global impact of oil prices on the risk perceptions of investors. Finally, we suggest a new estimator for the oil price to take into account the effect of the price variance. We show that the oil price influences the risk premiums of sovereign bonds, along with the price volatility that increases the accuracy of the model.

Suggested Citation

  • Herve Alexandre & Benoist Antonin De, 2010. "Oil prices and government bond risk premiums," Post-Print halshs-00642191, HAL.
  • Handle: RePEc:hal:journl:halshs-00642191 Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00642191
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    References listed on IDEAS

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    1. Hamilton, James D, 1997. "Measuring the Liquidity Effect," American Economic Review, American Economic Association, pages 80-97.
    2. Robert B. Barsky & Lutz Kilian, 2004. "Oil and the Macroeconomy Since the 1970s," Journal of Economic Perspectives, American Economic Association, vol. 18(4), pages 115-134, Fall.
    3. Bohi, Douglas R., 1991. "On the macroeconomic effects of energy price shocks," Resources and Energy, Elsevier, vol. 13(2), pages 145-162, June.
    4. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
    5. Rotemberg, Julio J & Woodford, Michael, 1996. "Imperfect Competition and the Effects of Energy Price Increases on Economic Activity," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 550-577, November.
    6. Kiseok Lee & Shawn Ni & Ronald A. Ratti, 1995. "Oil Shocks and the Macroeconomy: The Role of Price Variability," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4), pages 39-56.
    7. Corden, W Max & Neary, J Peter, 1982. "Booming Sector and De-Industrialisation in a Small Open Economy," Economic Journal, Royal Economic Society, vol. 92(368), pages 825-848, December.
    8. Hong G. Min, 1998. "Determinants of emerging market bond spread : do economic fundamentals matter?," Policy Research Working Paper Series 1899, The World Bank.
    9. Herrera, Ana María & Pesavento, Elena, 2009. "Oil Price Shocks, Systematic Monetary Policy, And The “Great Moderation”," Macroeconomic Dynamics, Cambridge University Press, vol. 13(01), pages 107-137, February.
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    Cited by:

    1. Arts, Bas, 2014. "Assessing forest governance from a ‘Triple G’ perspective: Government, governance, governmentality⁎⁎This article belongs to the Special Issue: Assessing Forest Governance," Forest Policy and Economics, Elsevier, vol. 49(C), pages 17-22.
    2. Waring, Justin & Latif, Asam & Boyd, Matthew & Barber, Nick & Elliott, Rachel, 2016. "Pastoral power in the community pharmacy: A Foucauldian analysis of services to promote patient adherence to new medicine use," Social Science & Medicine, Elsevier, vol. 148(C), pages 123-130.
    3. Emma Hooper, 2015. "Oil and Gas, which is the Belle of the Ball ? The Impact of Oil and Gas Reserves on Sovereign Risk," Working Papers halshs-01211506, HAL.
    4. repec:rnp:ecopol:ep1708 is not listed on IDEAS
    5. Bouri, Elie & de Boyrie, Maria E. & Pavlova, Ivelina, 2017. "Volatility transmission from commodity markets to sovereign CDS spreads in emerging and frontier countries," International Review of Financial Analysis, Elsevier, vol. 49(C), pages 155-165.
    6. Emma Hooper, 2015. "Oil and Gas, which is the Belle of the Ball ? The Impact of Oil and Gas Reserves on Sovereign Risk," AMSE Working Papers 1540, Aix-Marseille School of Economics, Marseille, France, revised 02 Oct 2015.

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    Keywords

    Oil prices; sovereign debt; risk premium;

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