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The role of international reserves and FDI in offsetting external debt risk
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Autores
Orientador(es)
Resumo(s)
This paper investigates the relationship between sovereign spreads and external assets and liabilities. To
address potential endogeneity concerns, we employ a panel VAR model within a generalized method of
moments (GMM) framework on a sample of 59 countries, encompassing 18 advanced economies and 41
emerging markets, over the period from 1996 to 2021. The findings reveal that a positive shock to
international reserves (IIRR) assets (measured as a ratio to GDP) leads to a significant decrease in
sovereign spreads. Conversely, a positive shock to the external debt to GDP ratio leads to a significant
increase in sovereign spreads. Both effects are stronger in emerging markets. The responses of spreads
to shocks in foreign direct investment (FDI) liabilities are less clear, highlighting that not all foreign
liabilities have the same effect on the cost of international credit. We corroborate the robustness of the
results using the local projection method and a variety of additional tests.
Descrição
Palavras-chave
Sovereign spread External asset and liabilities Panel VAR
Contexto Educativo
Citação
Battaglia, Juan Jose (2022). "The role of international reserves and FDI in offsetting external debt risk". REM Working paper series, nº 0355/2024
Editora
ISEG – REM (Research in Economics and Mathematics)