Assessing the extent of contagion of sovereign credit risk among BRICS countries

This paper contributes to the literature of sovereign credit risk contagion by conducting a counterfactual analysis on credit risk spillovers among BRICS countries. The conditional value-at-risk (CoVaR) methodology is used to this end. Moreover, the paper makes use of the generalised forecast error decomposition to assess the contribution of state variables in the CoVaR of each of the BRICS countries conditioned by China, the biggest economies of the BRICS. The findings of this paper show that credit risk distress in China affects the most all countries sovereign credit risk in the BRICS grouping. Moreover, the channel through which credit risk distress in China affect other BRICS country is not homogenous