Sovereign Credit Default Swaps and the Macroeconomy

Reference:

Liu, Y. and Morley, B., 2011. Sovereign Credit Default Swaps and the Macroeconomy. Working Paper. Bath, UK: Department of Economics, University of Bath. (Bath Economics Research Working Papers; 03/11)

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Official URL:

http://www.bath.ac.uk/economics/research/workingpapers.html

Abstract

The aim of this study is to determine whether the domestic interest rate or the exchange rate affect the sovereign credit default swaps. To date most studies on corporate CDS markets have emphasised the importance of domestic factors such as the interest rate. But with the sovereign CDS market, the international environment also needs to be incorporated into any analysis. Using a VAR and Granger non-causality tests, the results suggest that it is the exchange rate that has the most important effect on sovereign CDS markets, with domestic interest rates having only a marginal effect.

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