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- Title
Sovereign Risk Channels and Exchange Rates.
- Authors
KESSE, KWABENA
- Abstract
This paper elucidates the channels through which sovereign risk and exchange rates are related. I show that the channels are different depending on whether a country is classified as an emerging or an advanced economy. Generally for emerging market economies, both local (country-specific political and macroeconomic risk) and global sovereign risk factors (proxied by the VIX) do play a significant role in the depreciation of the local currency relative to the U.S. dollar. For advanced economies, sovereign risk seems to have become important for currency depreciation at a much later date, with political risk becoming prominent in the post 2007-2008 financial crisis era. Global factors also seem to play an important role in the relationship between advanced economy sovereign risk and exchange rates in the post crisis era.
- Subjects
U.S. dollar; FOREIGN exchange rates; DEPRECIATION; MACROECONOMICS; FINANCIAL crises
- Publication
Quarterly Journal of Finance & Accounting, 2017, Vol 55, Issue 1/2, p77
- ISSN
1939-8123
- Publication type
Article