Fundamentals or market sentimentwhat causes country risk?

Resumo

The country risk indicator, as measured by the JP Morgan's EMBI or grades of rating agencies such as Standard Poor's (SP's) or Moody's, does not seem to truly reflect the fundamentals of an economy. Countries that pursue sound economic policies are frequently placed on the same level as countries with a populist orientation or with a recent history of default or debt restructuring. Such circumstance generates a feeling of unease with regard to these ratings. The objective of this article is to investigate whether these indicators truly reflect market fundamentals or whether some sort of prejudice, or intolerance towards certain countries, can be identified. We use the Oaxaca-Blinder decomposition to analyse the differences in country risk, measured as by EMBI+, for a group of emerging markets. This decomposition allows us to separate the 'justified' (differences in fundamentals) from the 'unjustified' differences (same fundamental differently evaluated).

Ficha do documento

Tipo

Artigo científico

Ano

2010

Instituição

Routledge Journals, Taylor & Francis Ltd

Fonte

Repositório da FGV

Idioma

Inglês

Acesso

Acesso restrito

DOI

10.1080/00036840801964518

Identificador

oai:repositorio.fgv.br:10438/23177

Temas

EconomiaDados

Palavras-chave

Unit root testsWage discriminationPanel dataDecompositionEconomiaRisco financeiro