Local Currency Sovereign Risk
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Author |
: Wenxin Du |
Publisher |
: |
Total Pages |
: 61 |
Release |
: 2015 |
ISBN-10 |
: OCLC:1308415712 |
ISBN-13 |
: |
Rating |
: 4/5 (12 Downloads) |
Synopsis Local Currency Sovereign Risk by : Wenxin Du
We introduce a new measure of emerging market sovereign credit risk: the local currency credit spread, defined as the spread of local currency bonds over the synthetic local currency risk-free rate constructed using cross-currency swaps. We find that local currency credit spreads are positive and sizable. Compared with credit spreads on foreign currency-denominated debt, local currency credit spreads have lower means, lower cross-country correlations, and lower sensitivity to global risk factors. We discuss several major sources of credit spread differentials, including positively correlated credit and currency risk, selective default, capital controls and various financial market frictions.
Author |
: Mr.Giovanni Dell'Ariccia |
Publisher |
: International Monetary Fund |
Total Pages |
: 54 |
Release |
: 2018-09-07 |
ISBN-10 |
: 9781484359624 |
ISBN-13 |
: 1484359623 |
Rating |
: 4/5 (24 Downloads) |
Synopsis Managing the Sovereign-Bank Nexus by : Mr.Giovanni Dell'Ariccia
This paper reviews empirical and theoretical work on the links between banks and their governments (the bank-sovereign nexus). How significant is this nexus? What do we know about it? To what extent is it a source of concern? What is the role of policy intervention? The paper concludes with a review of recent policy proposals.
Author |
: Mikhail Chernov |
Publisher |
: |
Total Pages |
: 0 |
Release |
: 2020 |
ISBN-10 |
: OCLC:1194658938 |
ISBN-13 |
: |
Rating |
: 4/5 (38 Downloads) |
Synopsis Sovereign Credit and Exchange Rate Risks by : Mikhail Chernov
We study the dynamic properties of sovereign bonds in emerging markets and their associated risk premiums. We focus on the properties of credit spreads, exchange rates, and their interaction. Relying on the term structure of local currency bonds issued by Asia-Pacific sovereigns, we find that local variables are significant in the dynamics of currency and credit risk, and the components of bond risk premiums reflecting these risks. Local currency bonds dramatically improve the investment frontier.
Author |
: Giancarlo Corsetti |
Publisher |
: International Monetary Fund |
Total Pages |
: 49 |
Release |
: 2013-11-06 |
ISBN-10 |
: 9781475516807 |
ISBN-13 |
: 1475516800 |
Rating |
: 4/5 (07 Downloads) |
Synopsis Sovereign Risk and Belief-Driven Fluctuations in the Euro Area by : Giancarlo Corsetti
Sovereign risk premia in several euro area countries have risen markedly since 2008, driving up credit spreads in the private sector as well. We propose a New Keynesian model of a two-region monetary union that accounts for this “sovereign risk channel.” The model is calibrated to the euro area as of mid-2012. We show that a combination of sovereign risk in one region and strongly procyclical fiscal policy at the aggregate level exacerbates the risk of belief-driven deflationary downturns. The model provides an argument in favor of coordinated, asymmetric fiscal stances as a way to prevent selffulfilling debt crises.
Author |
: Blaise Gadanecz |
Publisher |
: |
Total Pages |
: 27 |
Release |
: 2014 |
ISBN-10 |
: OCLC:900685229 |
ISBN-13 |
: |
Rating |
: 4/5 (29 Downloads) |
Synopsis Exchange Rate Risk and Local Currency Sovereign Bond Yields in Emerging Markets by : Blaise Gadanecz
Author |
: Thordur Jonasson |
Publisher |
: International Monetary Fund |
Total Pages |
: 133 |
Release |
: 2018-04-06 |
ISBN-10 |
: 9781484350546 |
ISBN-13 |
: 1484350545 |
Rating |
: 4/5 (46 Downloads) |
Synopsis A Primer on Managing Sovereign Debt-Portfolio Risks by : Thordur Jonasson
This paper provides an overview of sovereign debt portfolio risks and discusses various liability management operations (LMOs) and instruments used by public debt managers to mitigate these risks. Debt management strategies analyzed in the context of helping reach debt portfolio targets and attain desired portfolio structures. Also, the paper outlines how LMOs could be integrated into a debt management strategy and serve as policy tools to reduce potential debt portfolio vulnerabilities. Further, the paper presents operational issues faced by debt managers, including the need to develop a risk management framework, interactions of debt management with fiscal policy, monetary policy, and financial stability, as well as efficient government bond markets.
Author |
: Wenxin Du |
Publisher |
: |
Total Pages |
: 65 |
Release |
: 2016 |
ISBN-10 |
: OCLC:1016879470 |
ISBN-13 |
: |
Rating |
: 4/5 (70 Downloads) |
Synopsis Sovereign Risk, Currency Risk, and Corporate Balance Sheets by : Wenxin Du
Nominal debt provides consumption-smoothing benefits if it can be inflated away during recessions. However, we document empirically that countries with more countercyclical inflation, where nominal debt provides better consumption smoothing, issue more foreign-currency debt. We propose that monetary policy credibility explains the currency composition of sovereign debt and nominal bond risks in the presence of risk-averse investors. In our model, low credibility governments inflate during recessions, generating excessively countercyclical inflation in addition to the standard inflationary bias. With countercyclical inflation, investors require risk premia on nominal debt, making nominal debt issuance costly for low credibility governments. We provide empirical support for this mechanism, showing that countries with higher nominal bond-stock betas have significantly larger nominal bond risk premia and borrow less in local currency.
Author |
: Dan Galai |
Publisher |
: International Monetary Fund |
Total Pages |
: 22 |
Release |
: 2009-05-01 |
ISBN-10 |
: 9781451872576 |
ISBN-13 |
: 1451872577 |
Rating |
: 4/5 (76 Downloads) |
Synopsis Credit Risk Spreads in Local and Foreign Currencies by : Dan Galai
The paper shows how-in a Merton-type model with bankruptcy-the currency composition of debt changes the risk profile of a company raising a given amount of financing, and thus affects the cost of debt. Foreign currency borrowing is cheaper when the exchange rate is positively correlated with the return on the company's assets, even if the company is not an exporter. Prudential regulations should therefore differentiate among loans depending on the extent to which borrowers have "natural hedges" of their foreign currency exposures.
Author |
: Carmen M. Reinhart |
Publisher |
: Princeton University Press |
Total Pages |
: 513 |
Release |
: 2011-08-07 |
ISBN-10 |
: 9780691152646 |
ISBN-13 |
: 0691152640 |
Rating |
: 4/5 (46 Downloads) |
Synopsis This Time Is Different by : Carmen M. Reinhart
An empirical investigation of financial crises during the last 800 years.
Author |
: Mr.Tamon Asonuma |
Publisher |
: International Monetary Fund |
Total Pages |
: 48 |
Release |
: 2016-02-25 |
ISBN-10 |
: 9781498387620 |
ISBN-13 |
: 1498387624 |
Rating |
: 4/5 (20 Downloads) |
Synopsis Sovereign Defaults, External Debt, and Real Exchange Rate Dynamics by : Mr.Tamon Asonuma
Emerging countries experience real exchange rate depreciations around defaults. In this paper, we examine this observed pattern empirically and through the lens of a dynamic stochastic general equilibrium model. The theoretical model explicitly incorporates bond issuances in local and foreign currencies, and endogenous determination of real exchange rate and default risk. Our quantitative analysis replicates the link between real exchange rate depreciation and default probability around defaults and moments of the real exchange rate that match the data. Prior to default, interactions of real exchange rate depreciation, originated from a sequence of low tradable goods shocks with the sovereign’s large share of foreign currency debt, trigger defaults. In post-default periods, the resulting output costs and loss of market access due to default lead to further real exchange rate depreciation.