The determinants of sovereign risk: an empirical analysis for the OECD countries

Abstract

This thesis focuses on the determinants of sovereign risk. Initially, the measurements of sovereign risk and the factors that affect it are explained. Furthermore, a panel regression analysis using a dataset of 24 OECD countries during a period from 2000 to 2020 is performed. The results showed that the unemployment rate has a positive and statistically significant effect on sovereign risk. In the second part of the empirical analysis, the sample is divided into categories. The first category divides the countries into the EMU and the non-EMU members. The results showed that the unemployment rate was statistically significant only in the first group. The second category divides the data into three time periods: pre-crisis (2000-2006), during-crisis (2007-2009), and post-crisis (2010-2020). In the first period, the foreign exchange reserves were found to have a statistical and economic effect on sovereign risk, while in the second period, the VIX Index and in the third period the unemployment rate have a statistically significant effect on sovereign risk.