An empirical model of the Brazilian country risk -- an extension of the beta country risk model

This paper develops a statistical model to study the Brazilian country risk using a country beta model in the spirit of Harvey and Zhou (1993), Erb et al. (1996a, b) and Gangemi et al. (2000). Specifically, the impact of macroeconomic variables is analysed using a time-varying parameter approach. An extension of the original model is applied in order to verify the parameters' stability over time. It is found that monetary policy had a significant and stable impact on Brazil's country risk and international reserves presented a significant impact only during the fixed exchange rate period.