Sovereign risk: global and local factors

Jonathan Garita-Garita () and Jorge León-Murillo
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Jonathan Garita-Garita: Department of Economic Research, Central Bank of Costa Rica
Jorge León-Murillo: Department of Economic Research, Central Bank of Costa Rica

No 1508, Documentos de Trabajo from Banco Central de Costa Rica

Abstract: Determinants of sovereign spread in Costa Rica are analyzed through different macroeconomic variables derived from theory. A quarterly panel data set, from 2002 to 2014, is used to estimate an Arellano-Bond specification model. A VAR model is also estimated to identify transmission effects from shocks of Latin America's and Central America's risk perception on Costa Rica's sovereign spread. Macroeconomic fundamentals such as fiscal and external imbalances, local inflation and domestic interest rates help explain the EMBI spread of Costa Rica and other countries in the sample. External factors related with international stock market volatility and global risk perceptions also have a role determining this spread. Furthermore, our findings show a contemporaneous and positive effect from a perturbation in Latin America's spread over Costa Rica's EMBI spread. ***Resumen: El documento analiza los determinantes del diferencial soberano para Costa Rica, considerando variables derivadas de la teoría económica. Se utiliza un panel de datos de 2002 a 2014 para estimar una especificación de Arellano-Bond. Se estima, además, un modelo VAR para identificar el efecto traspaso de choques en la percepción de riesgo en Latinoamérica y Centroamérica sobre el diferencial soberano costarricense. Los resultados indican que los determinantes macroeconómicos asociados con desbalances fiscales y externos, inflación y tasas de interés locales explican el margen del EMBI de Costa Rica y de otros países seleccionados. Destaca además el efecto que tienen factores globales relacionados con la volatilidad de los mercados financieros y la percepción global de riesgo a nivel internacional. Finalmente, se identifica un efecto traspaso contemporáneo y positivo de una perturbación en el margen de Latinoamérica sobre el respectivo de Costa Rica.

Keywords: Sovereign Risk, Bonds, Financial Markets, Transmission, Riesgo soberano; Bonos; Mercados financieros; Transmisión (search for similar items in EconPapers)
JEL-codes: G15 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2015-11
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Persistent link: https://EconPapers.repec.org/RePEc:apk:doctra:1508

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