Verlag:
Instituto de Pesquisa Econômica Aplicada, Rio de Janeiro
The high interest rates offered in Brazil can be seen as a limit for the Brazilian economic growth. This is one of the current major Brazilian debates where political and monetary authorities aim to search the causes of these high yields to suggest...
mehr
ZBW - Leibniz-Informationszentrum Wirtschaft, Standort Kiel
Signatur:
DS 194 (890)
Fernleihe:
keine Fernleihe
The high interest rates offered in Brazil can be seen as a limit for the Brazilian economic growth. This is one of the current major Brazilian debates where political and monetary authorities aim to search the causes of these high yields to suggest public policies for its reduction. This paper analyses the determinants for the Brazilian spread implicit on C-Bond prices, being the difference of the Brazilian yield and the yield of a risk free Bond. This spread is the risk premium required by the market due to the possibility of default in a future period of time. We employ the structural approach for modeling credit risk, which related the spread to the default probability, that is contingent to the capacity and ability to pay the debt. Macroeconomic indicators are stochastic variables which drive the occurrence of the default event. The results show that: a) the Brazilian spread can be explained by the foreign debt measure, therefore the model suggests a reduction on the foreign debt to reduce the spread level; b) commonly used indicators such as "Foreign Debt/Exportations" or "Importations/Reserves" show significant worse results; c) structural models for the credit risk analysis based on macroeconomic indicators can explain Brazilian sovereign risk, and so the spread level; d) the use of econometric methods is inadequate to explain the spread since it has a non linear relation with the macroeconomic indicators; and e) for the current debt level given by the ratio "Net Foreign Debt/ GNP", each point added increases the spread on 0.25%.
