How Sovereign is Sovereign Credit Risk
TLDR
In this paper, the authors studied the nature of sovereign credit risk using an extensive set of sovereign CDS data and found that the majority of the sovereign credit risks can be linked to global factors.Abstract:
We study the nature of sovereign credit risk using an extensive set of sovereign CDS data. We find that the majority of sovereign credit risk can be linked to global factors. A single principal component accounts for 64 percent of the variation in sovereign credit spreads. Furthermore, sovereign credit spreads are more related to the US stock and high-yield markets than they are to local economic measures. We decompose credit spreads into their risk premium and default risk components. On average, the risk premium represents about a third of the credit spread. (JEL F34, G15, O16, O19, P34)read more
Citations
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Risk Matters: The Real Effects of Volatility Shocks
Jesús Fernández-Villaverde,Jesús Fernández-Villaverde,Pablo Guerrón-Quintana,Juan F Rubio-Ramirez,Martín Uribe,Martín Uribe +5 more
TL;DR: In this article, the authors show that changes in the volatility of the real interest rate at which small open emerging economies borrow have a quantitatively important effect on real variables like output, consumption, investment, and hours worked.
Journal ArticleDOI
Risk Matters: The Real Effects of Volatility Shocks
TL;DR: In this article, the authors show that changes in the volatility of the real interest rate at which small open emerging economies borrow have an important effect on variables like output, consumption, investment, and hours.
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International Channels of Transmission of Monetary Policy and the Mundellian Trilemma
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Default and the Maturity Structure in Sovereign Bonds
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The EMU sovereign-debt crisis: Fundamentals, expectations and contagion
TL;DR: In this article, a detailed empirical investigation of the EMU sovereign-debt crisis is presented, where the authors find a marked shift in market pricing behavior from a "convergence-trade" model before 2007 to one driven by macro-fundamentals and international risk thereafter.
References
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Modeling Term Structures of Defaultable Bonds
TL;DR: In this paper, a reduced-form model of the valuation of contingent claims subject to default risk is presented, focusing on applications to the term structure of interest rates for corporate or sovereign bonds and the parameterization of losses at default in terms of the fractional reduction in market value that occurs at default.
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