Fiscal Sustainability, Default Risk and Euro Area Sovereign Bond Spreads

2011 ◽  
Author(s):  
Vladimir Borgy ◽  
Thomas Laubach ◽  
Jean-Stéphane Mésonnier ◽  
Jean-Paul Renne
Keyword(s):  
Euro Area ◽  
Default Risk ◽  
Fiscal Sustainability ◽  
Sovereign Bond ◽  
Bond Spreads

scholarly journals Fiscal Sustainability, Default Risk and Euro Area Sovereign Bond Spreads Markets

2011 ◽  
Author(s):  
Vladimir Borgy ◽  
Thomas Laubach ◽  
Jean-Stéphane Mésonnier ◽  
Jean-Paul Renne
Keyword(s):  
Euro Area ◽  
Default Risk ◽  
Fiscal Sustainability ◽  
Sovereign Bond ◽  
Bond Spreads

scholarly journals Sovereign Default Risk and Uncertainty Premia

2016 ◽  
Vol 8 (3) ◽  
pp. 230-266 ◽  
Author(s):  
Demian Pouzo ◽  
Ignacio Presno
Keyword(s):  
Default Risk ◽  
Sovereign Debt ◽  
Probability Model ◽  
Model Misspecification ◽  
Sovereign Default ◽  
Sovereign Bond ◽  
Endogenous Default ◽  
Sovereign Default Risk ◽  
International Investors ◽  
Bond Spreads

This paper studies how international investors' concerns about model misspecification affect sovereign bond spreads. We develop a general equilibrium model of sovereign debt with endogenous default wherein investors fear that the probability model of the underlying state of the borrowing economy is misspecified. Consequently, investors demand higher returns on their bond holdings to compensate for the default risk in the context of uncertainty. In contrast with the existing literature on sovereign default, we match the bond spreads dynamics observed in the data together with other business cycle features for Argentina, while preserving the default frequency at historical low levels. (JEL E43, E44, F34, G12, G21, H63, O16)

Mispricing of Risk in Sovereign Bond Markets with Asymmetric Information

2016 ◽  
Vol 17 (4) ◽  
pp. 491-511 ◽  
Author(s):  
Benedikt Mihm
Keyword(s):  
Asymmetric Information ◽  
Default Risk ◽  
Sovereign Debt ◽  
Debt Crisis ◽  
Fiscal Sustainability ◽  
Bond Prices ◽  
Sovereign Bond ◽  
European Sovereign Debt Crisis ◽  
The Government ◽  
Sovereign Bond Markets

Abstract The likelihood that a government will repay its sovereign debt depends both on the amount of debt it issues and on the government’s future ability to repay. Whilst the former is publicly observable, the government may have more information about the latter than investors. This paper shows that this asymmetric information problem impairs the market’s ability to differentiate economies according to their fiscal sustainability, and can lead to a disconnect between bond prices and default risk. The model can help rationalise the behaviour of Eurozone bond prices prior to the recent European sovereign debt crisis.

scholarly journals Fiscal Sustainability in Aging Societies: Evidence from Euro Area Countries

2020 ◽  
Vol 12 (24) ◽  
pp. 10276
Author(s):  
María del Carmen Ramos-Herrera ◽  
Simón Sosvilla-Rivero
Keyword(s):  
Euro Area ◽  
International Organizations ◽  
Population Aging ◽  
Fiscal Sustainability ◽  
Sharp Rise ◽  
Discretionary Fiscal Policy ◽  
Using Data ◽  
Sustainability Controlling ◽  
Aging Societies

Fiscal sustainability remains a paramount challenge in the Euro Area (EA) countries after the sharp rise in public debt-to-GDP ratios in the aftermath of the financial crisis of 2008. Using data from 11 EA countries over the period 1980–2019, we apply panel data techniques to examine the effects of population aging on fiscal sustainability, controlling for key macroeconomic variables. Our results suggest that the discretionary fiscal policy is strongly persistent, not being consistent with long-term fiscal solvency. Moreover, our results indicate that the fiscal stance is countercyclical for the countries under study and that population aging poses a major challenge for fiscal sustainability. The findings are robust to a different grouping of countries within the sample (core and peripheral countries, relatively old and young countries, and relatively more and less indebted countries). We consider that our results may have some practical meaning for national policymakers and international organizations responsible for regional and global fiscal surveillance and might shed some light on the possible effects that population aging could have on the effort of EA countries to restore public finances on a sustainable basis.

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