Balance sheet effects and the country risk premium: An empirical investigation

Juan Carlos Berganza, Roberto Chang, Alicia García Herrero

Research output: Contribution to journalArticlepeer-review

16 Scopus citations


Based on recent theories emphasizing financial imperfections, this paper is an empirical investigation of the link between a country's risk premium and the balance sheet effect of a devaluation. In a panel of emerging economies, balance sheet effects, due to increased external debt service after an unexpected real depreciation, significantly raise the risk premium. This result is robust to various checks and appears driven by those countries with the largest financial imperfections. Also, particularly large real depreciations turn out to be disproportionately important, meaning that balance sheet effects may be strongest at times of economic crisis. JEL no. F34, F41.

Original languageEnglish (US)
Pages (from-to)592-612
Number of pages21
JournalReview of World Economics
Issue number4
StatePublished - 2004

All Science Journal Classification (ASJC) codes

  • Economics, Econometrics and Finance(all)


  • Balance sheet effects
  • Devaluation
  • Liability dollarization


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