Sovereign Risk and Financial Risk

Simon Gilchrist, Bin Wei, Vivian Yue and Egon Zakrajšek ()

No 27, FRB Atlanta Working Paper from Federal Reserve Bank of Atlanta

Abstract: In this paper, we study the interplay between sovereign risk and global financial risk. We show that a substantial portion of the comovement among sovereign spreads is accounted for by changes in global financial risk. We construct bond-level sovereign spreads for dollar-denominated bonds issued by more than 50 countries from 1995 to 2020 and use various indicators to measure global financial risk. Through panel regressions and local projection analysis, we find that an increase in global financial risk causes a large and persistent widening of sovereign bond spreads. These effects are strongest when measuring global risk using the excess bond premium, which is a measure of the risk-bearing capacity of US financial intermediaries. The spillover effects of global financial risk are more pronounced for speculative-grade sovereign bonds.

Keywords: sovereign bonds; CDS; global financial risk; excess bond premium; global financial cycle (search for similar items in EconPapers)
JEL-codes: E43 E44 F33 G12 (search for similar items in EconPapers)
Pages: 43
Date: 2021-11-24
New Economics Papers: this item is included in nep-fmk, nep-ifn, nep-mac, nep-opm and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in 2021

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https://www.atlantafed.org/-/media/documents/resea ... d-financial-risk.pdf (application/pdf)

Related works:
Journal Article: Sovereign risk and financial risk (2022)
Chapter: Sovereign Risk and Financial Risk (2021)
Working Paper: Sovereign Risk and Financial Risk (2021)
Working Paper: Sovereign Risk and Financial Risk (2021)
Working Paper: Sovereign Risk and Financial Risk (2021)
Working Paper: Sovereign Risk and Financial Risk (2013)
Working Paper: Sovereign Risk and Financial Risk (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedawp:93483

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DOI: 10.29338/wp2021-27

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