Determinants of sovereign spread in Costa Rica

Resumen

Determinants of sovereign spread in Costa Rica are analyzed using macroeconomic variables derived from theory. A quarterly panel data set from 2002 to 2014 is used to estimate an Arellano-Bond specification model. Additionally, a VAR model is estimated to identify transmission effects of shocks in risk perception in Latin American and Central America on Costa Rica’s sovereign spread. Macroeconomic fundamentals associated with fiscal and external imbalances, local inflation and domestic interest rates explain EMBI spread of Costa Rica and of the countries in the sample. External factors related with international stock market volatility and global risk perception also have a role on EMBI spread determination. Furthermore, there is a contemporaneous and positive effect of a perturbation in Latin America spread on Costa Rica’s EMBI spread.