Sovereign debt and reserves with liquidity and productivity crises

During the recent financial crisis, emerging economies have kept accumulating both sovereign reserves and debt. To account for this empirical fact, we model the optimal portfolio choice of a sovereign that is subject to liquidity and productivity shocks. We determine the equilibrium level of debt and its cost by solving a contracting game between sovereign and international lenders. Although raising debt increases the sovereign exposure to liquidity and productivity crises, the simultaneous accumulation of reserves can mitigate the negative effects of such crises. This mechanism rationalizes the complementarity between debt and reserves.     

Transmission of the financial and sovereign debt crises to the EMU: Stock prices,CDS spreads and exchange rates

This paper tests for the transmission of the 2007–2010 financial and sovereign debt crises to fifteen EMU countries. We use daily data from 2003 to 2010 on country financial and non-financial stock market indexes to analyze the stock market returns for three country groups within EMU: North, South and Small. The following results hold for both the North and South European countries, while the smallest countries seem to be relatively isolated from international events. First, we find strong evidence of crisis transmission to European non-financials from US non-financials, but not for financials. Second, in order to test how the sovereign debt crisis affects stock market developments we split the crisis in pre- and post-Lehman sub periods. Results show that financials become significantly more dependent on changes in the difference between the Greek and German CDS spreads after Lehman’s collapse, compared to the pre-Lehman sub period. However, this increase is much smaller for non-financials. Third, before the crisis euro appreciations coincide with European stock market decreases, whereas this relationship reverses during the crisis. Finally, this reversal seems to be triggered by Lehman’s collapse.     

Sovereign Debt Crises in Latin America: A Market Pressure Approach

ABSTRACT

We construct a continuous sovereign debt crisis index for four large Latin American countries for the period 1870?2012. To obtain the optimal set of indicators and the optimal value of the threshold for dating crises we apply the receiver operating characteristic (ROC) curve. Our sovereign debt crisis index is a weighted average of three indicators: the debt-to-GDP ratio, the external interest rate spread, and the exports-to-imports ratio. The continuous index allows a more advanced analysis of sovereign debt crises as illustrated with an investigation of the relationship between sovereign debt crises and business cycles in Latin America.     

Sovereign debt risk in emerging market economies: Does inflation targeting adoption make any difference?

Based on a sample of 38 emerging economies, we find that inflation targeting (IT) adoption improves sovereign debt risk. Next, we show that this favorable effect is sensitive to several structural characteristics, and to the considered time span. Finally, the measure of sovereign risk (sovereign debt ratings or government bond yield spreads) and the IT form (full-fledged or partial) equally influence the effect of IT adoption on sovereign debt risk. Thus, our paper provides valuable insights regarding IT implementation as a device for improving emerging market economies' access to international financial markets.     

主权债务风险跨国溢出研究——来自频域的新证据

本文从国家间主权债务风险溢出的持续期角度出发,采用基于广义方差分解谱表示的BK溢出指数方法,首次从频域视角对短期和长期下的主权债务风险跨国溢出效应进行研究。研究发现:第一,短期和长期下的主权债务风险跨国溢出效应均较为显著,并且时域下的总溢出主要由短期的风险溢出主导。第二,14个国家的短期和长期风险输出水平呈线性关系,但对于风险输入,不同类型国家出现分化并形成两个聚类,新兴市场国家的短期风险输入水平远高于长期,其具有较强的“短期脆弱性”。第三,风险输出国的自身风险越大,对他国的长期溢出水平越高,风险输入国的自身风险越大,接收他国的短期溢出水平越高,并且两两国家间的进出口规模、金融市场一体化水平和经济周期协同性与其长期风险溢出水平呈正相关关系,而与其短期风险溢出水平的关系并不显著。第四,短期和长期的主权债务风险溢出网络都呈现明显的区域聚集特征,并且各国在短期溢出网络中主要与同区域以及经济金融环境相似的国家连接,在长期溢出网络中则通过经贸关系将连接范围扩大至不同区域甚至经济金融环境差异较大的国家。     

主权债务风险跨国溢出研究——来自频域的新证据

本文从国家间主权债务风险溢出的持续期角度出发,采用基于广义方差分解谱表示的BK溢出指数方法,首次从频域视角对短期和长期下的主权债务风险跨国溢出效应进行研究。研究发现:第一,短期和长期下的主权债务风险跨国溢出效应均较为显著,并且时域下的总溢出主要由短期的风险溢出主导。第二,14个国家的短期和长期风险输出水平呈线性关系,但对于风险输入,不同类型国家出现分化并形成两个聚类,新兴市场国家的短期风险输入水平远高于长期,其具有较强的“短期脆弱性”。第三,风险输出国的自身风险越大,对他国的长期溢出水平越高,风险输入国的自身风险越大,接收他国的短期溢出水平越高,并且两两国家间的进出口规模、金融市场一体化水平和经济周期协同性与其长期风险溢出水平呈正相关关系,而与其短期风险溢出水平的关系并不显著。第四,短期和长期的主权债务风险溢出网络都呈现明显的区域聚集特征,并且各国在短期溢出网络中主要与同区域以及经济金融环境相似的国家连接,在长期溢出网络中则通过经贸关系将连接范围扩大至不同区域甚至经济金融环境差异较大的国家。     

美国国债评级展望下调的根源及前景——基于标普下调美国国债评级展望的分析

标普下调美国国债评级展望的事件引发市场剧烈波动,美国国债问题备受关注。文章分析指出,美国财经纪律松散、回避长期性经济结构调整而依赖短期性刺激救助政策等因素,是构成本次国债评级展望下调的深层原因,而未来由美国＂婴儿潮＂引发的＂银发海啸＂及社会医疗保险支出的上升将加剧财政收支矛盾。总体来看,美国国债评级短期内大幅下调的可能性不大,但长期风险不容忽视。     

Foreign currency-denominated borrowing in the absence of operating incentives

It is well known that corporations issue foreign currency-denominated debt to hedge foreign currency cash flows with offsetting interest payments. We test an alternative “opportunistic” motive for foreign currency-denominated borrowing. We do so by constructing a comprehensive sample of foreign currency-denominated bonds issued by sovereign government and agency issuers with no foreign currency cash flows or foreign operations. We find strong and consistent evidence that the borrowers in our sample consider cross-currency differences in covered and uncovered interest yields in choosing the currency in which to denominate their international debt. We estimate the average gains to opportunistic covered yield borrowing to be 4 to 18 basis points. Interestingly, we also find that the average bond offering in our sample precedes a large and beneficial depreciation of the issue currency over the course of the following year. These results support what has been a frequent conjecture in the foreign debt market.     

Rating the rating agencies: Anticipating currency crises or debt crises?

We revisit the question whether sovereign ratings predict financial crises. In line with previous studies, we find that ratings do not predict currency crises and are instead downgraded ex-post. However, the likelihood of currency crisis and the implied probability of sovereign default are not closely linked in emerging markets post-1994. When debt crises are defined as sovereign distress – when spreads are higher than 1000 basis points or 10 percentage points – we find that access to international capital markets is reduced by half. In addition, although sovereign distress events last for typically 5.2 consecutive months, they can persist for longer periods up to nine quarters. Finally, lagged ratings and ratings changes, including negative outlooks and credit watches, are useful in anticipating sovereign distress.     

Governance and bank characteristics in the credit and sovereign debt crises – the impact of CEO power

The global financial sector recently suffered from two interrelated crises: the credit crisis and the sovereign debt crisis. A common question is whether the recent experience with the credit crisis has helped in dealing with the sovereign debt crisis. We study more specifically whether banks with powerful CEOs perform better or worse than other banks, and if there is any difference in this relationship between the two crises. Using unique hand-collected data for 378 large global banks, we find that CEO power has a significant positive relation to bank profitability and asset quality, but also to insolvency risk, during the sovereign debt crisis. Thus, strong CEOs do not appear to be detrimental to bank performance. Our results also support the idea that deposit insurance may have contributed to the credit crisis.     

A comprehensive approach to measuring the relation between systemic risk exposure and sovereign debt

Using an integrated model to control for simultaneity, as well as new risk measurement techniques such as Adapted Exposure CoVaR and Marginal Expected Shortfall (MES), we show that the aggregate systemic risk exposure of financial institutions is positively related to sovereign debt yields in European countries in an episodic manner, varying positively with the intensity of the financial crisis facing a particular nation. We find evidence of a simultaneous relation between systemic risk exposure and sovereign debt yields. This suggests that models of sovereign debt yields should also include the systemic risk of a country's financial system in order to avoid potentially important mis-specification errors. We find evidence that systemic risk of a country's financial institutions and the risk of sovereign governments are inter-related and shocks to these domestic linkages are stronger and longer lasting than international risk spillovers. Thus, the channel in which domestic sovereign debt yields can be affected by another nation's sovereign debt is mostly an indirect one in that shocks to a foreign country's government finances are transmitted to that country's financial system which, in turn, can spill over to the domestic financial system and, ultimately, have a destabilizing effect on the domestic sovereign debt market.     

希腊主权债务危机的成因与影响

日益严重的希腊主权债务危机将希腊推向了欧元区主权债务问题的风口浪尖,由此也形成了影响欧元区稳定运行的严峻挑战。该文基于国际金融危机对希腊经济与财政运行状况的影响,分析了引起希腊主权债务危机的成因及解决途径,指出解决希腊主权债务危机除了希腊自身的努力外,依然需要国际社会尤其是欧盟的援助。从全球的角度看,其他经济体的主权债务问题也同样值得警惕和重视。     

The Banking Exposure to International Lending: Regional Differences or Common Fundamentals?

The present study unveils the importance of regional characteristics of sovereign debt crises in Latin America and South East Asia. It proposes and empirically corroborates a refinement of the logit approach, for assessing sovereign risk, which draws upon a region‐specific parameterization—composite estimator. The analysis identifies some common features of debt crises that largely reflect domestic solvency, liquidity factors and, to a lesser extent, trade‐balance variables and external shocks. Nonetheless, heterogeneity effects and regional signals point towards the use of region‐specific models. Such approach depicts specific risk factors such as openness and debt burden for Latin America and reserves, output and government expenditure for Asia, thereby suggesting distinctive aspects to debt crises. Out‐of‐sample forecast comparisons further support the use of the composite estimator. The latter outperforms the simple pooled and random effects approach on the basis of various criteria, albeit slightly biased towards false non‐crises predictions.     

Modelling correlation dynamics of EMU sovereign debt markets during the recent turmoil

The purpose of the present study is to explicitly model the correlation dynamics of Eurozone sovereign debt markets. Our analysis runs from 2000 through 2014. Time varying correlations are derived from a dynamic conditional correlation GARCH model (t-cDCC model). We document substantial variability in correlations that is time and region-dependent. Evidence suggests that the Lehman collapse coupled with the German banks’ bailout programme and the events that followed have undermined sovereign debt integration. Moreover, sensitivity analysis provides useful insights that global and regional risk factors play pivotal role in explaining correlation structure both before and after the onset of the Eurozone sovereign debt crisis. We believe that our results entail important implications for market authorities, international fixed income portfolio diversification and asset allocation.     

Do Sovereign Re‐Ratings Destabilize Equity Markets during Financial Crises? New Evidence from Higher Return Moments

This study investigates the effects of S&P's sovereign re‐ratings on the higher moments of equity market returns over recent financial crises. Using a set of intraday stock market index prices and sovereign credit ratings for a sample of 36 countries that experienced sovereign rating changes over the period from 1996 to 2013, we find that the higher moments of stock market returns are significantly more responsive to sovereign re‐ratings during financial crises, but the effects on stock markets are not the same across different financial crises. The effects during crises are, however, magnified for large downgrades and those that are associated with a loss of investment grade status. We find that there are asymmetric effects during financial crises in that downgrades are consistently more significant than upgrades in increasing realized volatility and realized kurtosis. Both upgrades and downgrades affect realized skewness in times of crises in the expected direction.     

Macroeconomic imbalances,financial stress and fiscal vulnerability in the euro area before the debt crises: A market view

This paper tries to identify the macro-financial imbalances that exposed the euro area countries to fiscal stress before the outbreak of the European debt crises. Contrary to conventional wisdom that interprets fiscal stress in terms of fiscal sustainability, we focus on short-term fiscal vulnerability as reflected by the conditions of debt refinancing in the sovereign bond markets. We find that market-based indicators capturing risk perceptions of sovereign debts have been influenced by the indicators defined in the European Macroeconomic Imbalance Procedure (MIP) and by variables of financial vulnerability. When pricing the risk of sovereign bonds, the holders of government debts take into account not only the macroeconomic imbalances but also factors such as banking distress, corporate bond risk, liquidity risks in the interbank market or the volatility of stock prices.     

Bank portfolio exposure to emerging markets and its effects on bank market value

This study estimates a model of banking company equity returns taking into consideration book value and market value measures of their exposure to emerging markets debt. In this estimation, general systematic market factors, such as the rate of return on the S&P500 stock index and yields on a constant maturity 5-year Treasury note, are held constant such that the exposure variables are accounting for effects due to banks’ exposure to emerging market debt. The results, although not uniform among banking companies, support the hypothesis that the extent of exposure to emerging market debt are factored into the valuation of banking company equity contemporaneously. The inclusion of a market value indicator adds to the explanation of equity returns of some banks. It is also clear that knowing the extent of the exposure on a book value basis is important information alone that may allow investors to take account of or evaluate the effects of changes in banking company equity valuation from LDC debt exposures. We also perform an event study for three major debt crises to determine whether the market recognizes the effects of these events on bank valuation. The event study results show that there is little information from identifying the time period of the crises on banking company equity returns. Explanations for this are that the information of these possible crises has been embedded in bank changes in exposure and that the market valuation of the emerging market debt is already accounted for by our model.     

基于Logit模型的新兴经济体主权债务危机预警研究

当前新兴经济体对全球经济增长贡献持续增加,在世界经济中的地位和作用日益突出。伴随新兴经济体经济规模的快速增长,其债务规模也在迅速扩大,随之而来的债务风险问题日益受到国际关注。特别是2008年以来,希腊等新兴经济体债务危机频频发生,对世界经济增长与金融稳定产生了巨大影响。因此,研究构建新兴经济体主权债务危机预警系统显得十分迫切和重要。本文阐述债务危机形成机理和影响,梳理债务危机相关理论和文献;讨论债务危机预警手段及相关标准选择,总结归纳多种研究模型和方法的优缺点,并说明本文采用Logit模型研究问题的依据和过程;基于Logit模型,选取拉丁美洲、亚洲、非洲共十个新兴经济体1980-2017年数据进行债务危机预警实证分析。研究结果表明,Logit方法能够以较高准确率发出预警信号,对新兴经济体债务危机有着良好预警能力;最后,本文根据研究结论给出相应启示与建议。     

Private sector share of external debt and financial stability: Evidence from bank loans

In the last two decades, the private sector has contracted a substantially larger share in the total amount of foreign-currency international debt (private sector share of external debt), especially in developing countries. In this paper, I empirically examine the effect of this phenomenon on bank loan prices. I find that the private sector share of external debt negatively and significantly impacts the price of bank loans. This result supports the hypothesis that private sector debt contributes to international financial stability to a greater degree than sovereign debt. Nevertheless, this impact is canceled out in the presence of fixed exchange regimes that are unsuitable with respect to fundamentals. In such circumstances, the private sector may take advantage of capital market distortions that are maintained by official authorities and thus exposes the country to further financial instability. Additional results corroborate the observation that the gain in financial stability stems from more efficient use of funds and reduced monitoring costs.     

Question the Unquestionable Beauty of A Collective Proceeding for All Sovereign Debt Claims

The new challenges presented by the current Eurozone crisis and the NML Capital v. Argentina case are likely to shift the international community's attention from holdout behavior in foreign bonds restructuring to inter‐creditor issues. In the past years, many academics, and nongovernmental organizations concerned with debt relief, have put forward proposals to create a bankruptcy regime for states. But none of these proposals has seriously examined what rules should apply to treatment among creditors. Moreover, all insist that there must be a collective proceeding for all sovereign debt claims, without explaining why. This approach is simply taken for granted, as it is one of the fundamental principles of bankruptcy law. The article questions this orthodoxy through examining the nature of sovereign debt crisis, the feature of the limited pool of sovereign assets, and the nonliquidable fact of the sovereign debtor. It also argues that the common pool problem does not exist in the sovereign debt context.