Modeling country risk in Latin America: A country beta approach

We utilize a country beta approach to investigate whether local and global risk factors influence Latin American country risk. We find that both factors have relatively different impacts on Mexico, Brazil, Argentina and Chile. The real interest and inflation rates from G-7 countries have a negative impact on country beta. The highest effect is on Mexico followed by Brazil and Chile. Among the local factors, money supply and exchange rates affect country risk. Money supply influences Mexico the most, followed by Chile and Brazil. The exchange rate has an impact on Mexico and Brazil but no effect on Argentina and Chile.