Sovereign Risk Premium and Macroeconomy: Causal Relationship
Sovereign Risk Premium and Macroeconomy: Causal Relationship

Summary/Abstract: In recent years, because of the 2008 financial crisis and the evolution of the sovereign debt markets, there hasbeen a significant increase in interest in understanding the factors that determine the risk premium, becominga key indicator of the financial stability of countries, and a measure of the risk assumed by investors who buyin a country's bonds or shares and for those responsible for the monetary policy. The aim of this study is toidentify the possible causal relationships between the risk premium and various macroeconomic variables, aswell as external factors that could influence its evolution. To do this, sources of economic-financial informationbased on monthly data covering the period from 2004 to 2022 are used. The methodology used focuses onthe estimation of VAR (Autoregressive Vectors) models, which allows examining the dynamic interaction andcausality between multiple variables. These models are suitable for studying the interdependence and mu-tual influence between the variables considered. The results obtained show that, although the risk premiumhas an autoregressive trend, there are other macroeconomic variables, such as the monetary aggregate M1,the bank default rate and the unemployment rate, which play a significant role in its behavior. Likewise, it isobserved that external factors, such as the exchange rate or volatility index, also exert a significant influenceon the risk premium.

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