Sovereign Defaults the Role of Volatility

By Luís A. V. Catão, Bennett W Sutton. Social Science Research Network, 2002

167 citations recorded by the source corpus.

While the relationship between volatility and credit risk is central to much of the literature on finance and banking, it has been largely neglected in empirical macro studies on sovereign defaults. This paper presents new econometric estimates for a panel of 25 emerging market countries over 1970-2001, breaking down aggregate volatility into its external and domestic policy components. We find that countries with historically higher macroeconomic volatility are more prone to default, and particularly so if part of this volatility is policy-induced. Reducing policy volatility thus appears to be key to improving a country`s credit standing.

Subfields: Finance

View Paper: https://www.semanticscholar.org/paper/216d04e63aeb1a1ec9bf8f17bf228574ac99f9b5

Citations in the corpus

• Determinants of Sovereign Risk: Macroeconomic Fundamentals and the Pricing of Sovereign Debt (2010, unknown): “There are some exceptions: Catão and Sutton (2002) and Catão and Kapur (2006) predict sovereign default in a hazard model using a similar setup to the one used in the second part of this paper.”
• Why is Fiscal Policy Often Procyclical (2008, unknown): “db0 db = 1 Fb(b ) > 0 ( 6 ) Thus, recalling that Fb(b) < 0, that F (b) < R(b) and that Rbb < 0, and using”