Bayesian Analysis of Country Risk Premia in Developing Small Open Economies

This thesis studies a model presented by Neumeyer & Perri (2005), which aims to explain the strong countercyclicality of interest rates and net exports in emerging market economies. The model accomplishes this by decomposing interest rates into an international rate and a country risk component,...

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Main Author: CONTI, Seigmund Vincent Roque
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Language:English
Published: Institutional Knowledge at Singapore Management University 2010
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Online Access:https://ink.library.smu.edu.sg/etd_coll/73
https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1072&context=etd_coll
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spelling sg-smu-ink.etd_coll-10722015-08-27T08:42:33Z Bayesian Analysis of Country Risk Premia in Developing Small Open Economies CONTI, Seigmund Vincent Roque This thesis studies a model presented by Neumeyer & Perri (2005), which aims to explain the strong countercyclicality of interest rates and net exports in emerging market economies. The model accomplishes this by decomposing interest rates into an international rate and a country risk component, and by making labor demand sensitive to movements in these rates via a working capital constraint imposed on the representative firm. Moreover, it proposes two approaches to determining the stochastic processes for these interest rates: the independent country risk case and the induced country risk case. The induced country risk model calibrated to Argentine data reproduces the country’s business cycle facts well. However, the results are sensitive to certain parameters and specifications which are not properly set in accordance with developing economy data. Hence, a Bayesian approach is used to verify the model results. The estimation results highlight some areas for improvement in the model. First, certain key parameters of the model are difficult to inform by existing data. Second, the mechanisms through which the model tries to explain key developing economy business cycle facts are important, but need to be augmented in some way. In particular, more structure needs to be added into the model of default risk to help capture the dynamics of interest rates and output more fully. 2010-01-01T08:00:00Z text application/pdf https://ink.library.smu.edu.sg/etd_coll/73 https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1072&context=etd_coll http://creativecommons.org/licenses/by-nc-nd/4.0/ Dissertations and Theses Collection (Open Access) eng Institutional Knowledge at Singapore Management University small open economy bayesian DSGE real business cycles country risk premium interest rate shocks countercyclical interest rates Econometrics Economic Policy Finance
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic small open economy
bayesian DSGE
real business cycles
country risk premium
interest rate shocks
countercyclical interest rates
Econometrics
Economic Policy
Finance
spellingShingle small open economy
bayesian DSGE
real business cycles
country risk premium
interest rate shocks
countercyclical interest rates
Econometrics
Economic Policy
Finance
CONTI, Seigmund Vincent Roque
Bayesian Analysis of Country Risk Premia in Developing Small Open Economies
description This thesis studies a model presented by Neumeyer & Perri (2005), which aims to explain the strong countercyclicality of interest rates and net exports in emerging market economies. The model accomplishes this by decomposing interest rates into an international rate and a country risk component, and by making labor demand sensitive to movements in these rates via a working capital constraint imposed on the representative firm. Moreover, it proposes two approaches to determining the stochastic processes for these interest rates: the independent country risk case and the induced country risk case. The induced country risk model calibrated to Argentine data reproduces the country’s business cycle facts well. However, the results are sensitive to certain parameters and specifications which are not properly set in accordance with developing economy data. Hence, a Bayesian approach is used to verify the model results. The estimation results highlight some areas for improvement in the model. First, certain key parameters of the model are difficult to inform by existing data. Second, the mechanisms through which the model tries to explain key developing economy business cycle facts are important, but need to be augmented in some way. In particular, more structure needs to be added into the model of default risk to help capture the dynamics of interest rates and output more fully.
format text
author CONTI, Seigmund Vincent Roque
author_facet CONTI, Seigmund Vincent Roque
author_sort CONTI, Seigmund Vincent Roque
title Bayesian Analysis of Country Risk Premia in Developing Small Open Economies
title_short Bayesian Analysis of Country Risk Premia in Developing Small Open Economies
title_full Bayesian Analysis of Country Risk Premia in Developing Small Open Economies
title_fullStr Bayesian Analysis of Country Risk Premia in Developing Small Open Economies
title_full_unstemmed Bayesian Analysis of Country Risk Premia in Developing Small Open Economies
title_sort bayesian analysis of country risk premia in developing small open economies
publisher Institutional Knowledge at Singapore Management University
publishDate 2010
url https://ink.library.smu.edu.sg/etd_coll/73
https://ink.library.smu.edu.sg/cgi/viewcontent.cgi?article=1072&context=etd_coll
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