Essays on macroeconomics: sovereign risk, US monetary policy shock, and economic growth

This PhD thesis comprises three essays. Chapters 1 and 2 examine sovereign risk and
the effects of US monetary policy spillovers in Latin America, while Chapter 3 analyses
the relationship between sovereign debt and economic growth in Latin America, Central
America, and the Caribbean. Chapters 1 and 3 provide empirical analyses, whereas
Chapter 2 develops a theoretical sovereign debt model.
Chapter 1 investigates how unexpected US monetary policy shocks affect sovereign
risk and macroeconomic conditions in Latin America. A contractionary US monetary pol-
icy shock increases sovereign bond yield spreads, reduces government bond market values, raises domestic lending rates, lowers bank lending to the corporate sector, and contributes to exchange rate depreciation, ultimately reducing industrial production. These transmission mechanisms are analysed using a panel vector autoregressive (PVAR) model with an external exogenous instrument that incorporates the orthogonalised US monetary policy surprise (mps⊥). The results show that contractionary US monetary policy shocks increase sovereign risk and deteriorate domestic financial and macroeconomic conditions.
Chapter 2 develops a two-period sovereign default model to analyse how unexpected
contractionary US monetary policy shocks influence sovereign risk in emerging markets.
The model incorporates domestic households, sovereign bond issuance, and endogenous
government default decisions under financial constraints. It extends the existing literature by introducing a dual liquidity structure and linking sovereign default probabilities to international interest rates.
Chapter 3 examines whether a sovereign debt threshold exists in the debt–growth
relationship for Latin America, Central America, and the Caribbean. Motivated by the
growing debate on whether public debt has nonlinear effects on economic growth, the
chapter applies threshold models to assess the existence of debt thresholds across countries in the region. The empirical results provide no evidence of a statistically significant debt threshold beyond which economic growth systematically declines. Instead, the findings suggest that the effects of sovereign debt on growth depend on country-specific structural and institutional characteristics rather than on a universal numerical threshold.