TIME-VARYING VOLATILITY, DEFAULT, AND THE SOVEREIGN RISK PREMIUM

• 成果类型: Article
• 署名作者: Seoane, Hernan D.
• 署名单位: Universidad Carlos III de Madrid
• 刊物名称: INTERNATIONAL ECONOMIC REVIEW
• ISSN/ISSBN: 0020-6598
• DOI: 10.1111/iere.12353
• 发表日期: 2019
• 页码: 283-301
• 关键词: interest-rates; uncertainty; spreads; debt; INVESTMENT

摘要

This article studies how volatility changes affect sovereign spreads in strategic default models. Volatility changes affect savings and sovereign spreads. However, the impact of volatility shocks is state dependent; when the economy has a low debt, an increase in volatility is prone to generate precautionary savings. Instead, with high debt, an increase in volatility is likely to induce an even further increase in debt and spreads, both in endowment and production economies. I document a positive correlation between sovereign spreads and aggregate income volatility for a set of European economies during the debt crisis, consistent with the model's implications.