Sovereign credit default swaps and the macroeconomy

Yang Liu and Bruce Morley

Applied Economics Letters, 2012, vol. 19, issue 2, 129-132

Abstract: The aim of this study is to determine whether the domestic economy as represented by the interest rate, the international economic status as represented by the exchange rate or both determine sovereign Credit Default Swap (CDS) spreads. Using a Vector Autoregressive (VAR) and Granger noncausality tests, the results suggest that it is the exchange rate that has the most important effect on sovereign CDS spreads, with domestic interest rates having only a limited effect. There is also some evidence of causality running from the CDS spread to the exchange rate.

Date: 2012
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Working Paper: Sovereign Credit Default Swaps and the Macroeconomy (2011)
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DOI: 10.1080/13504851.2011.568390

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