Sovereign Debt, Default Risk, and the Liquidity of Government Bonds

Assaf Razin of Tel Aviv University reviews “Managing the Euro Area Debt Crisis”, by William R. Cline. The Econlit abstract of this book begins: “Addresses the recent debt crisis in Europe and the European Central Bank's commitment to preserve the euro area with purchases of government bonds, and explores the history of the Euro Area debt crisis and makes projections of future debt sustainability. Discusses policy implications, leading policy issues, and model projections; fiscal adjustment, growth, and default risk; the bank-sovereign debt nexus; external adjustment and breakup costs; eurobonds, firewalls, outright monetary transactions, and debt restructuring; European debt simulation model projections─Ireland, Italy, Portugal, and Spain; and debt restructuring and economic prospects in Greece.” Cline is Senior Fellow with the Peterson Institute for International Economics.

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Examining the influence of moral suasion on sovereign debt default risk

Asia Pacific Management Review ◽

10.1016/j.apmrv.2018.10.006 ◽

2019 ◽

Vol 24 (1) ◽

pp. 44-53

Author(s):

Chien-Jung Ting

Keyword(s):

Default Risk ◽

Sovereign Debt ◽

Debt Default ◽

Moral Suasion

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An Apocalypse Foretold

IMF Working Papers ◽

10.5089/9781513560403.001 ◽

2020 ◽

Vol 20 (231) ◽

Author(s):

Serhan Cevik ◽

João Tovar Jalles

Keyword(s):

Climate Change ◽

Low Income ◽

Default Risk ◽

Sovereign Debt ◽

Global Economy ◽

Low Income Countries ◽

Climate Change Research ◽

Climate Change Vulnerability ◽

Debt Default ◽

The Impact

Climate change poses an existential threat to the global economy. While there is a growing body of literature on the economic consequences of climate change, research on the link between climate change and sovereign default risk is nonexistent. We aim to fill this gap in the literature by estimating the impact of climate change vulnerability and resilience on the probability of sovereign debt default. Using a sample of 116 countries over the period 1995–2017, we find that climate change vulnerability and resilience have significant effects on the probability of sovereign debt default, especially among low-income countries. That is, countries with greater vulnerability to climate change face a higher likelihood of debt default compared to more climate resilient countries. These findings remain robust to a battery of sensitivity checks, including alternative measures of sovereign debt default, model specifications, and estimation methodologies.

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Maturity, Indebtedness, and Default Risk

The American Economic Review ◽

10.1257/aer.102.6.2674 ◽

2012 ◽

Vol 102 (6) ◽

pp. 2674-2699 ◽

Cited By ~ 145

Author(s):

Satyajit Chatterjee ◽

Burcu Eyigungor

Keyword(s):

Standard Deviation ◽

Default Risk ◽

Sovereign Debt ◽

External Debt ◽

Equilibrium Price ◽

Short Term ◽

Price Function ◽

Output Ratio ◽

Novel Method

We advance quantitative-theoretic models of sovereign debt by proving the existence of a downward sloping equilibrium price function for long-term debt and implementing a novel method to accurately compute it. We show that incorporating long-term debt allows the model to match Argentina's average external debt-to-output ratio, average spread on external debt, the standard deviation of spreads, and simultaneously improve upon the model's ability to account for Argentina's other cyclical facts. We also investigated the welfare properties of maturity length and showed that if the possibility of self-fulfilling rollover crises is taken into account, long-term debt is superior to short-term debt. (JEL E23, E32, F34, O11, O19)

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Default Risk of Sovereign Debt in Central America

Emerging Markets and Sovereign Risk ◽

10.1057/9781137450661.0008 ◽

2014 ◽

Author(s):

Astrid Ayala ◽

Szabolcs Blazsek ◽

RaÃºl B. GonzÃ¡lez dePaz

Keyword(s):

Central America ◽

Default Risk ◽

Sovereign Debt

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Reforming the Regulatory Treatment of Sovereign Exposures in Banking Regulation

Credit and Capital Markets – Kredit und Kapital ◽

10.3790/ccm.53.1.81 ◽

2020 ◽

Vol 53 (1) ◽

pp. 81-122

Author(s):

André Sterzel

Keyword(s):

Financial Stability ◽

Sovereign Debt ◽

Debt Crisis ◽

Banking Regulation ◽

Jel Classification ◽

Bank Capital ◽

Exposure Limits ◽

Government Bonds ◽

Balance Sheets ◽

Bank Balance Sheets

Abstract The European sovereign debt crisis has shown the tight linkage between sovereign and bank balance sheets. In the aftermath of the crisis, several reforms have been discussed in order to mitigate the sovereign-bank nexus. These reforms include the abolishment of preferential government bond treatment in banking regulation. This paper gives a detailed overview of literature and data which are closely related to the existing preferential sovereign bond treatment in bank regulation and highlights the need for reforms especially in the euro area. Against this background, the following three regulatory reforms are described and discussed: (i) positive risk weights for government bonds in bank capital regulation, (ii) sovereign exposure limits, and (iii) haircuts for government bonds in bank liquidity regulation. The discussion focusses on the effects of these reforms for bank behaviour and financial stability. JEL Classification: H63, H12, G11, G18

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SOVEREIGN DEFAULT, TRADE, AND TERMS OF TRADE

Macroeconomic Dynamics ◽

10.1017/s1365100519000701 ◽

2019 ◽

pp. 1-35 ◽

Cited By ~ 2

Author(s):

Grace Weishi Gu

Keyword(s):

Default Risk ◽

Foreign Debt ◽

Home Bias ◽

Emerging Countries ◽

Terms Of Trade ◽

Sovereign Default ◽

Trade Flows ◽

Income Loss ◽

Debt Default ◽

Sovereign Defaults

Sovereign defaults are associated with income and trade reductions and terms-of-trade deterioration. This paper develops a two-country model to study the interactions between income, trade, terms of trade, and foreign-debt default risk and default events. Such default risk and events are costly because they adversely affect the demand for a borrower country’s intermediate goods exports and its income. Consequently, trade flows change due to the income loss and consumption home bias. The defaulter’s terms of trade also deteriorate endogenously, which accelerates its income and trade losses. The model produces procyclical imports, exports, terms of trade, and other empirical features of emerging countries’ business cycles and default episodes.

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