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





This paper assesses empirically whether global risk aversion (GRA) and some if its determinants (US economic growth and the US long term interest rates) explain 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. Chile, with a lower sovereign risk, is relatively more affected. The opposite is true for Argentina, Ecuador and Venezuela. In addition, the influence of GRA on spreads has risen since the Enron scandal. Finally, both an increase in US economic growth and US long term interest rates are found to reduce spreads 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 0503005.

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Length: 51 pages
Date of creation: 17 Mar 2005
Date of revision:
Handle: RePEc:wpa:wuwpif:0503005
Note: Type of Document - pdf; pages: 51
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  1. Mark Gertler & Cara S. Lown, 2000. "The Information in the High Yield Bond Spread for the Business Cycle: Evidence and Some Implications," NBER Working Papers 7549, National Bureau of Economic Research, Inc.
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  10. Favero, Carlo A. & Giavazzi, Francesco, 2004. "Inflation Targeting and Debt: Lessons from Brazil," CEPR Discussion Papers 4376, C.E.P.R. Discussion Papers.
  11. 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.
  12. Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
  13. Carmen Reinhart & Guillermo A. Calvo & Eduardo Fernández-Arias & Ernesto Talvi, 2001. "Growth and External Financing in Latin America," Research Department Publications 4277, Inter-American Development Bank, Research Department.
  14. Brenda Gonzalez-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.
  15. 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.
  16. 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.
  17. Patrick McGuire & Martijn A Schrijvers, 2003. "Common factors in emerging market spreads," BIS Quarterly Review, Bank for International Settlements, December.
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