Sovereign Risk: A Macro-Financial Perspective

Author: 
Udaibir S. Das
Maria A. Oliva
Takahiro Tsuda
Description: 
ADBI Working Paper Series
JEL codes: 
Abstract: 
We examine some of the macro-financial dimensions of sovereign risk and propose a conceptual framework that captures risks other than just the default risk. Morphed under a multi-dimensional notion of sovereign risk, we argue that the existing empirical methodologies to measure sovereign risk cover only partial aspects of sovereign risk and fail to capture its macro-financial dimensions. We highlight a menu of tools that could be used to tackle the broader notion of sovereign risk, and suggest that authorities should actively use them to manage the macro-financial dimensions of sovereign risk before those risks feed into the real economy.