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The Curse of Non-Investment Grade Countries

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  • Roberto Rigobon

Abstract

Mexico was upgraded from non-investment to investment grade in March of 2000. This paper examines the impact of this event on the properties of the transmission of shocks between Argentina and Mexico. The paper shows that there is a statistically significant change in the propagation of shocks the day the upgrade was announced. Furthermore, it is found that the parameters that shifted are those explaining the diffusion of shocks through the means, while the transmission through the variances remained stable. Moreover, the change in the estimated coefficients can explain more than a third in the unconditional comovement that these assets experienced before the upgrade. From the methodological point of view, the paper offers an identification procedure based on conditional heteroskedasticity (ARCH) that solves the problem of estimation in a linear simultaneous equations model that can be used in other Macro and Finance applications.

Suggested Citation

  • Roberto Rigobon, 2001. "The Curse of Non-Investment Grade Countries," NBER Working Papers 8636, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:8636
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    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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