Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
This paper develops a macro-finance model of the Brazilian economy and its sovereign debt markets that allows for domestic and international macroeconomic influences as well as swings in investor confidence. It finds significant evidence of common trends in the US and Brazilian economies and bond markets as well as spillover effects from US inflation and business cycles to the Brazilian economy. The US Fed Funds rate influences Brazilian sovereign spreads, as do Brazilian inflation and policy rates. The Brazilian confidence factor dominates the behavior of the spreads during periods of crisis and we find that it also has a powerful effect on the level and volatility of macroeconomic variables. These results suggest that the macro-finance approach could throw light upon the behavior of other economies that are troubled by sovereign risk.