The Role of Global Risk Aversion in Explaining Latin American Sovereign Spreads

51 Pages Posted: 29 Aug 2023

See all articles by Alicia García-Herrero

Alicia García-Herrero

Bruegel; Hong Kong University of Science & Technology (HKUST) - HKUST Institute for Emerging Market Studies (IEMS); Natixis

Alvaro Ortiz

BBVA Research; IE Business School

Multiple version iconThere are 2 versions of this paper

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

Garcia-Herrero, Alicia and Ortiz, Alvaro, The Role of Global Risk Aversion in Explaining Latin American Sovereign Spreads (May 2005). Banco de Espana Working Paper 0505, Available at SSRN: https://ssrn.com/abstract=4552279 or http://dx.doi.org/10.2139/ssrn.4552279

Alicia Garcia-Herrero

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium, 1210
Belgium

Hong Kong University of Science & Technology (HKUST) - HKUST Institute for Emerging Market Studies (IEMS) ( email )

IAS 2019, Lo Ka Chung Building,
Lee Shau Kee Campus, HKUST
Clear Water Bay, Kowloon
Hong Kong

Natixis ( email )

France

IE Business School ( email )

Spain

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