At least since the euro area sovereign debt crisis, it is evident that country risk premium shocks have adverse economic effects, not only in emerging economies, but advanced economies as well. Using a Bayesian Panel Vector Autoregression model, we find that increases in the risk premium lower...

The literature on the effects of country risk premium shocks has mostly focused on emerging market economies. We show empirically that in developed economies, risk premium shocks explain a non-trivial share of aggregate fluctuations and are key drivers of real activity in particular crises. Both...