The Role of Global Risk Aversion in Explaining Latin American Sovereign Spreads
51 Pages Posted: 29 Aug 2023
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The Role of Global Risk Aversion in Explaining Latin American Sovereign Spreads
Date Written: May 2005
Abstract
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.[enter Abstract Body]
Keywords: global risk aversion, sovereign spreads, Latin America
JEL Classification: F3, F34, E43
Suggested Citation: Suggested Citation