Sovereign Credit Risk, Financial Fragility, and Global Factors - Patricio Valenzuela

Evento

04
Mar
2020

Sovereign Credit Risk, Financial Fragility, and Global Factors - Patricio Valenzuela

Data:
Horário:
10h00
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Sobre o evento

This study explores the relationship between sovereign credit risk, financial stability, and global factors in emerging market economies, by using a novel model-based semi-parametric metric (JLoss) that computes the expected joint loss of the banking sector in the event of a large financial meltdown. Our metric of financial fragility is positively associated with sovereign bond spread and negatively associated with higher sovereign credit ratings, after controlling for the standard determinants of sovereign credit risk. The results additionally indicate that countries with more fragile banking sectors are exposed to a global (exogenous) financial factors than those with more resilient banking sectors. These findings underscore that regulators must ensure that stability of the banking sector to improve governments’ borrowing costs in international debt markets.