BBVA Research presents a new tool for country risk measurement

The new tool, designed by BBVA Research, assesses current and future country risk based on the vulnerability of each region BBVA Research will release a quarterly report on country risk and develop its own instruments to assess potential contagion to a country BBVA Research’s country risk analysis covers 40 developed and emerging economies and will continue expanding to offer the broadest information possible BBVA Research has designed a new tool to measure and accurately predict future trends in country risk in different markets. Country risk is a key variable for investors, signalling the risks of a specific country based on economic, social and political factors. BBVA Research will be releasing a quarterly report called “BBVA Country Risk Outlook,” offering a unique assessment based on instruments developed in-house to measure country risk in different economies around the world. BBVA Research is aware that investors want to have a broad and general view of the present and future risks affecting a given country. As a result, it has designed a new instrument for country risk measurement that estimates and predicts country risk based on forecasts of key variables. Specifically, BBVA Research will estimate countries’ current and future vulnerability and the degree of contagion to which they are exposed in accordance with a series of factors, e.g. budget deficit, current account deficit, foreign debt, liquidity or international reserves. The list of variables used by the tool to analyze country risk is rounded off with a set of factors that measure a country’s institutional strength and global risk aversion indicators. It does not take into consideration action by rating agencies. The forecast model helps estimate the structural level of a country’s or region’s risk premium; i.e. the part attributable to the economy and driven by short-term market factors. It also helps determine future equilibrium for country risk based on forecasts of key variables of country risk. In short, BBVA Research’s aim is to assess internal and external factors behind country risk and distinguish between structural risk and risk related to market circumstances. BBVA Research will be able to assess country risk globally and the degree of contagion, and predict future trends.

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