Sovereign risk matters: Endogenous default risk and the time-varying volatility of interest rate spreads

• 成果类型: Article
• 署名作者: de Ferra, Sergio; Mallucci, Enrico
• 署名单位: University of Oxford; Federal Reserve System - USA; Federal Reserve System Board of Governors
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2021.103542
• 发表日期: 2022
• 关键词: Sovereign risk; time-varying volatility; interest rate spreads

摘要

Emerging markets' interest rate spreads display substantial time-varying volatility. We show that models with endogenous sovereign default risk a la Eaton and Gersovitz (1981) can account for such volatility, even in the absence of shocks to the second moments of the exogenous stochastic variables. In particular, these models feature a key non-linearity that allows them to replicate the stochastic volatility of interest rate spreads and its comovement with other important economic variables. Volatility correlates positively with the level of the spreads and the trade balance, negatively with output and consumption. Hence, sovereign default models endogenize the stochastic volatility of interest rates observed in emerging market economies. (c) 2021 Elsevier B.V. All rights reserved.