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Monetary policy and country risk

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  • Vladimir Teles
  • Joaquim Andrade

Abstract

This article develops an econometric model in order to study country risk behaviour for six emerging economies (Argentina, Mexico, Russia, Thailand, Korea and Indonesia), by expanding the country beta risk model of Harvey and Zhou (1993), Erb et al. (1996a, b) and Gangemi et al. (2000). Towards this end, we have analysed the impact of macroeconomic variables, especially monetary policy, upon country risk, by way of a time-varying parameter approach. The results indicate an unstable effect of monetary policy upon country risk in periods of crisis. However, this effect is stable in other periods, and the Favero-Giavazzi effect is not verified for all economies, with an opposite effect being observed in many cases.

Suggested Citation

  • Vladimir Teles & Joaquim Andrade, 2008. "Monetary policy and country risk," Applied Economics, Taylor & Francis Journals, vol. 40(15), pages 2021-2028.
    • Handle: RePEc:taf:applec:v:40:y:2008:i:15:p:2021-2028
    DOI: 10.1080/00036840600949249
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