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The Role Of Global Risk Aversion In Explaining Latin American Sovereign Spreads

  • ALICIA GARCIA HERRERO

    (BANCO DE ESPAÑA)

  • ALVARO ORTIZ

    (REPSOL-YPF)

This paper explores the role of global risk aversion (GRA) and its main determinants, US economic growth and the US government bond yield, in explaining developments in Latin American sovereign spreads. We find that GRA is significant and positively related to Latin American sovereign spreads and that its impact varies across countries and over time. Those countries with the lowest risk, such as Chile, are more affected by GRA. Its relevance has also risen over time, particularly since the sharp change in the perception of risk stemming from the Enron scandal. Finally, an increase in both US economic growth and the US government bond yield are found to reduce sovereign spreads in most Latin American countries, while the opposite is true for US short-term interest rates.

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Paper provided by EconWPA in its series International Finance with number 0408001.

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Length: 56 pages
Date of creation: 06 Aug 2004
Date of revision:
Handle: RePEc:wpa:wuwpif:0408001
Note: Type of Document - pdf; pages: 56
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Reinhart, Carmen & Calvo, Guillermo & Fernandez Arias, Eduardo & Talvi, Ernesto, 2001. "Growth and External Financing in Latin America," MPRA Paper 9074, University Library of Munich, Germany.
  2. 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.
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  4. Gertler, Mark & Lown, Cara S, 1999. "The Information in the High-Yield Bond Spread for the Business Cycle: Evidence and Some Implications," Oxford Review of Economic Policy, Oxford University Press, vol. 15(3), pages 132-50, Autumn.
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  7. Olivier Blanchard, 2004. "Fiscal Dominance and Inflation Targeting: Lessons from Brazil," NBER Working Papers 10389, National Bureau of Economic Research, Inc.
  8. Bernanke, B. & Gertler, M. & Gilchrist, S., 1998. "The Financial Accelerator in a Quantitative Business Cycle Framework," Working Papers 98-03, C.V. Starr Center for Applied Economics, New York University.
  9. Carlo A. Favero & Francesco Giavazzi, 2004. "Inflation Targeting and Debt: Lessons from Brazil," NBER Working Papers 10390, National Bureau of Economic Research, Inc.
  10. 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.
  11. Vivek B. Arora & Martin D. Cerisola, 2000. "How Does U.S. Monetary Policy Influence Economic Conditions in Emerging Markets?," IMF Working Papers 00/148, International Monetary Fund.
  12. Patrick McGuire & Martijn A Schrijvers, 2003. "Common factors in emerging market spreads," BIS Quarterly Review, Bank for International Settlements, December.
  13. Brenda González-Hermosillo & Vance Martin & Mardi Dungey & Renee Fry, 2003. "Characterizing Global Investors' Risk Appetite for Emerging Market Debt During Financial Crises," IMF Working Papers 03/251, International Monetary Fund.
  14. Hong G. Min, 1998. "Determinants of emerging market bond spread : do economic fundamentals matter?," Policy Research Working Paper Series 1899, The World Bank.
  15. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1992. "Capital Inflows and Real Exchange Rate Appreciation in Latin America," MPRA Paper 13843, University Library of Munich, Germany.
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