Download Comments by Kenichi Ueda

Comments on “Determinants of Sovereign
Risk Premiums for European Emerging
Markets” by Dumicic and Ridzak
Kenichi Ueda
International Monetary Fund
Young Economists Seminar,
Dubrovnik, June 23, 2010
The views expressed in this paper are those of the authors and should not be attributed to the International Monetary Fund,
its Executive Board or its management.
Summary of the Paper
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The paper investigates which factors affect sovereign risk
premium for European EMs. Well documented.
Factors are
 Global risk appetite measured by VIX**
 Country specific macro fundamentals (lagged)
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GDP growth **
Δ Govt debt/GDP
Inflation* ; Δ CB reserve/GDP
Δ CA deficit/GDP; External debt growth; Δ Imports/GDP
EU accession process**
“advanced” EM group (assumed to have low vulnerability)
Interaction terms (VIX x CA, x ExtDebt, x Group*)
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Comment 1: Interaction terms
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Interactions are interesting and important
Given the same global shock to risk appetite
(VIX), how the sovereign risk premiums
respond differently among countries?
 Better to look at more interaction terms
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GDP growth, inflation, etc.
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Comment 2: A deeper question
Difference in response to VIX reflects also
(future) fundamentals.
 What is the mechanism that affects the
economic performance (and thereby the risk
premium) when the global investors’ risk
appetite suddenly changed?
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Comment 3: Example, Bloom (2009)
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Comment 3: Implications by Bloom
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Rise in uncertainty affects economic
performance, depending on rigidities in
factor markets--both labor and investment.
“Fundamental” variables are endogenously
determined.
 More rigid  worse performance
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Also see, Blanchard and Gali on oil price; Claessens,
Ueda, and Yafeh on investment (tomorrow)
 More flexible economy can whether shocks better
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