A robust examination of COVID‐19 and country risk: Perspectives from the G10 countries

Abstract

This paper examines the effects of COVID‐19 new infections on the financial sovereign risks in the group of ten (G10) countries. The paper utilises panel least squares regression using monthly data over the period February 2020–July 2021. Two sovereign risk measures are examined: the Spread of Government Bond Yields and Sovereign Credit Default Swap spread. The results of the robustness tests show that the spread of the COVID‐19 has affected the sovereign risks significantly and positively. Contagion risks have been extended to exchanges rates and growth rates of international reserves. This paper offers two contributions. First, the results show robust evidence on the impact of COVID‐19 on country's sovereign risks. Second, the severity of COVID‐19 on country's sovereign risks is further. The empirical results carry policy implications that (a) countries must sustain efforts for safeguarding the evolution of COVID‐19 pandemic since it is hindering country's credit worthiness, thus increasing sovereign risks, (b) the G10 countries are advised to follow the zero COVID‐19 strategy, (c) macro prudential measures have to be implemented along with monetary policies that mitigate the sovereign risks and (d) implement social measures to restore the health system and contain the uncertainty on both economic and social grounds. [ FROM AUTHOR] Copyright of International Social Science Journal is the property of Wiley-Blackwell and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full . (Copyright applies to all s.)