Sovereign Default, Interest Rates and Political Uncertainty in Emerging Markets

Gabriel Cuadra and Horacio Sapriza

No 2006-02, Working Papers from Banco de México

Abstract: Emerging economies tend to experience larger political uncertainty and more default episodes than developed countries. This paper studies the effect of political uncertainty on sovereign default and interest rate spreads in emerging markets. The paper develops a quantitative model of sovereign debt and default under political uncertainty in a small open economy that captures some of the main empirical regularities in emerging economies: default occurs in equilibrium and interest rate spreads and default risk are countercyclical. Consistent with empirical evidence, the quantitative analysis shows that higher levels of political uncertainty significantly raise the default frequency and both the level and volatility of the spreads.

JEL-codes: F34 F41 (search for similar items in EconPapers)
Date: 2006-02
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Downloads: (external link)
https://www.banxico.org.mx/publications-and-press/ ... -251B02923801%7D.pdf (application/pdf)

Related works:
Journal Article: Sovereign default, interest rates and political uncertainty in emerging markets (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bdm:wpaper:2006-02

Access Statistics for this paper

More papers in Working Papers from Banco de México Contact information at EDIRC.
Bibliographic data for series maintained by Subgerencia de desarrollo de sistemas ().