Sovereign Risk and Financial Risk / Simon Gilchrist, Bin Wei, Vivian Z. Yue, Egon Zakrajšek.

Format:

Book

Author/Creator:

Gilchrist, Simon.

Contributor:

National Bureau of Economic Research.

Wei, Bin.

Yue, Vivian Z.

Zakrajšek, Egon.

Series:

Working Paper Series (National Bureau of Economic Research) no. w29501.

NBER working paper series no. w29501

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2021.

Summary:

In this paper, we study the interplay between sovereign risk and global financial risk. We show that a substantial portion of the comovement among sovereign spreads is accounted for by changes in global financial risk. We construct bond-level sovereign spreads for dollar-denominated bonds issued by over 50 countries from 1995 to 2020 and use various indicators to measure global financial risk. Through panel regressions and local projection analysis, we find that an increase in global financial risk causes a large and persistent widening of sovereign bond spreads. These effects are strongest when measuring global risk using the excess bond premium - a measure of the risk-bearing capacity of U.S. financial intermediaries. The spillover effects of global financial risk are more pronounced for speculative-grade sovereign bonds.

Notes:

Print version record

November 2021.