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

Banco de Espana Documento de Trabajo No. 0505

51 Pages Posted: 14 Apr 2005

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

Repsol YPF

Date Written: 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.

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 (2005). Banco de Espana Documento de Trabajo No. 0505, Available at SSRN: https://ssrn.com/abstract=688365 or http://dx.doi.org/10.2139/ssrn.688365

Alicia Garcia-Herrero (Contact Author)

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

Alvaro Ortiz

Repsol YPF ( email )

28046 Madrid
Spain
+34-91-348-81-00 (Phone)
+34-91-348-28-21 (Fax)

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