Title: Country risk and increasing returns to credibility gains: analysis for an emerging economy

Authors: Kiara De Deus Demura; Ricardo Ramalhete Moreira

Addresses: Federal University of Espírito Santo, Av. Fernando Ferrari, 514, Goiabeiras, Vitória-ES – CEP: 29075-910, Brazil ' Federal University of Espírito Santo, Av. Fernando Ferrari, 514, Goiabeiras, Vitória-ES – CEP: 29075-910, Brazil

Abstract: This article aimed to test how the monetary and fiscal policies' credibility impacts country risk by analysing the case of a relevant emerging economy. We performed estimates through OLS and GMM which showed that fiscal credibility can negatively affect country risk, rather than monetary credibility. This evidence corroborated the role of fiscal consolidation in order to shape a low and consistent level of country risk. At last, based on MS-regressions, we identified nonlinear credibility effects, which can be called increasing returns to fiscal credibility gains, thereby representing an innovation regarding previous studies.

Keywords: country risk; credibility gains; fiscal policy; monetary policy; increasing returns; Brazil.

DOI: 10.1504/IJFMD.2020.111890

International Journal of Financial Markets and Derivatives, 2020 Vol.7 No.4, pp.397 - 413

Received: 12 Nov 2019
Accepted: 30 May 2020

Published online: 07 Dec 2020 *

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