Working Paper: NBER ID: w8636
Authors: Roberto Rigobon
Abstract: Mexico was upgraded from non-investment to investment grade in March of 2000. This paper examines the impact of this event on the properties of the transmission of shocks between Argentina and Mexico. The paper shows that there is a statistically significant change in the propagation of shocks the day the upgrade was announced. Furthermore, it is found that the parameters that shifted are those explaining the diffusion of shocks through the means, while the transmission through the variances remained stable. Moreover, the change in the estimated coefficients can explain more than a third in the unconditional comovement that these assets experienced before the upgrade. From the methodological point of view, the paper offers an identification procedure based on conditional heteroskedasticity (ARCH) that solves the problem of estimation in a linear simultaneous equations model that can be used in other Macro and Finance applications.
Keywords: No keywords provided
JEL Codes: F3; C32; C10
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Mexico's credit rating upgrade (F34) | change in the transmission of shocks between Mexican and Argentinean sovereign bonds (F65) |
| change in the transmission of shocks between Mexican and Argentinean sovereign bonds (F65) | reduction in comovement (F29) |
| Mexico's credit rating upgrade (F34) | segmentation in the investor universe (G24) |
| segmentation in the investor universe (G24) | change in the dynamics of contagion and comovement in emerging markets (F44) |