Sovereign Risk and U.S. Monetary Policy Spillover Effects

DOI:  https://doi.org/10.12804/revistas.urosario.edu.co/economia/a.16291

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Published: Aug 12, 2026
Issue: Vol. 29 No. 01 (2026)
Section Articles


Keywords: US monetary policy shock sovereign risk government yield spread panel vector autoregressive model exogenous variable approach

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Authors

Willis Ruiz Marín
University of York

Abstract

This paper examines how U.S. monetary policy shocks affect sovereign risk and macroeconomic conditions in Latin American countries. U.S. monetary tightening increases sovereign bond yield spreads and reduces the market value of government bonds. It also raises lending rates and contracts bank credit to the corporate sector, leading to a decline in industrial production. The empirical analysis employs panel regressions and a panel vector autoregression (pvar) with an external instrument, incorporating the orthogonalized U.S. monetary policy surprise measure (mps┴) as an exogenous variable. The panel regression results do not provide statistically significant evidence that contractionary U.S. monetary policy increases sovereign risk or adversely affects macroeconomic and financial conditions in Latin America. In contrast, the pvar estimates indicate that contractionary U.S. monetary policy shocks raise sovereign risk and borrowing costs while weakening credit and real economic activity, providing evidence consistent with the proposed transmission mechanism.

How to Cite
Ruiz Marín, W. (2026). Sovereign Risk and U.S. Monetary Policy Spillover Effects. Revista Economía Del Rosario, 29(01), 1–40. https://doi.org/10.12804/revistas.urosario.edu.co/economia/a.16291
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