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Author: Mr.Tamon Asonuma Publisher: International Monetary Fund ISBN: 1498387624 Category : Business & Economics Languages : en Pages : 48
Book Description
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.
Author: Mr.Tamon Asonuma Publisher: International Monetary Fund ISBN: 1498387624 Category : Business & Economics Languages : en Pages : 48
Book Description
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.
Author: Tamon Asonuma Publisher: ISBN: Category : Languages : en Pages : 42
Book Description
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, using the case of Argentina's default in 2001, 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.
Author: Mr.Tamon Asonuma Publisher: International Monetary Fund ISBN: 1475597738 Category : Business & Economics Languages : en Pages : 48
Book Description
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.
Author: International Monetary Fund Publisher: International Monetary Fund ISBN: 9781589064539 Category : Business & Economics Languages : en Pages : 410
Book Description
This book examines the challenges facing the international monetary and financial system, as well as the future role of the Bretton Woods institutions in addressing those challenges. The volume is based on the proceedings of a 2004 conference cosponsored by the Banco de Espana and the International Monetary Fund to commemorate the 60th anniversary of the Bretton Woods meetings in July 1944. The chapters look at global imbalances, exchange rate issues, debt in emerging economies, and innovations in private and multilateral lending.
Author: Tiago Gomes da Silva Tavares Publisher: ISBN: Category : Debts, External Languages : en Pages : 124
Book Description
"This dissertation contributes to literature of International Economics and, in particular, of Sovereign Default with the study of three distinct issues. In the first chapter, I study the role of international reserves in sovereign debt restructuring episodes when fiscal adjustment is costly. This study departs from the observation that highly indebted developing economies commonly also hold large external reserves. This behavior seems puzzling given that governments in these countries borrow with an interest rate penalty to compensate lenders for default risk. Reducing debt to the same extent as reserves would maintain net liabilities constant while decreasing interest payments. However, holding reserves can have insurance benefits in a financial crisis. To rationalize the levels of international reserves and external debt observed in the data, a standard dynamic model of equilibrium default is extended to include distortionary taxation and debt restructuring. This chapter shows that fiscal adjustments induced by sovereign default can generate large demand for reserves if taxation is distortionary. At the same time, a non-negligible position in reserves modifies the debt restructuring negotiations upon default. A calibrated version of the model produces recovery rate schedules that are increasing with reserves, as seen in the data, being also able to replicate large positions of reserves and debt to GDP. Finally, I study how both mechanisms play a key quantitative role to generate such result, in fact, not including them, produces a counterfactual demand for reserves that is close to zero. In the second chapter, the relationship between labor market distortions and sovereign debt crises is explored. It is noted that risk of sovereign debt default has frequently affected both emerging market and developed economies. Such financial crises are often accompanied with severe declines of employment that are hard to justify using a standard dynamic stochastic model. In this chapter, I document that a labor wedge deteriorates substantially around swift reversals of current accounts or default episodes. I propose and evaluate two different explanations for these movements by linking the wedges to changes in labor taxes and in the cost of working capital. With these two features included, a dynamic model of equilibrium default is able to replicate the behavior of the labor wedge observed in the data around financial crisis. In the model, higher interest rates are propagated into larger costs of hiring labor through the presence of working capital. As an economy is hit with a stream of bad productivity shocks, the incentives to default become stronger, thus increasing the cost of debt. This reduces firm demand for labor and generates a labor wedge. A similar effect is obtained with a countercyclical tax rate policy. The model is used to shed light on the recent events of the Euro Area debt crisis and in particular of the Greek default event. Finally, in the third chapter, I develop a debt-to-output decomposition and document that a large fraction of the increase in the debt to output ratio during default is accounted by variations in the exchange rate. Also, using a large dataset on historical sovereign debt crises, it is shown in this chapter that devaluations of the exchange rate during periods of default are positively associated with international investor losses (haircuts) when debt is restructured. These results can be rationalized with the fact that large real devaluation decrease output when measured in foreign goods, thus reducing the availability of resources that can be used during negotiations. This implies that exchange rate fluctuations are an important source of risk in emerging economies affecting, among other things, debt dynamics and restructuring outcomes. As such, I conclude that most of the exchange rate neglect, typical in the sovereign default literature, should be seriously reconsidered"--Pages iii-v.
Author: Mr. Serkan Arslanalp Publisher: International Monetary Fund ISBN: Category : Business & Economics Languages : en Pages : 43
Book Description
We use a new, comprehensive data set on the sovereign debt investor base to document three novel empirical facts: (i) sovereign debt is repatriated - that is, shifted from external private to domestic investors - prior to sovereign defaults; (ii) not all crises are equal: evidence for repatriation during banking and currency crises is more limited; and (iii) the nature of defaults matters: external investors do not leave during preemptive debt restructurings. We further show that repatriation appears to be prevalent when defaults happen in large markets with low capital controls. The data set we use is uniquely suited to analyzing investor base dynamics during rare crises due to its large cross-section and time series, covering 180 countries from 1989 to 2020.
Author: Mr.Tamon Asonuma Publisher: International Monetary Fund ISBN: 1513596640 Category : Business & Economics Languages : en Pages : 25
Book Description
Emerging countries that have defaulted on their debt repayment obligations in the past are more likely to default again in the future than are non-defaulters even with the same external debt-to-GDP ratio. These countries actually have repeated defaults or restructurings in short periods. This paper explains these stylized facts within a dynamic stochastic general equilibrium framework by explicitly modeling renegotiations between a defaulting country and its creditors. The quantitative analysis of the model reveals that the equilibrium probability of default for a given debt-to-GDP level is weakly increasing with the number of past defaults. The model also accords with an additional fact: lower recovery rates (high NPV haircuts) are associated with increases in spreads at renegotiation.
Author: Mr.Udaibir S. Das Publisher: International Monetary Fund ISBN: 1451961944 Category : Business & Economics Languages : en Pages : 40
Book Description
Top down spillovers of sovereign default risk can have serious consequences for the private sector in emerging markets. This paper analyzes the effects of these spillovers using firm-level data from 31 emerging market economies. We assess how sovereign risk affects corporate access to international capital markets, in the form of external credit (loans and bond issuances) and equity issuances. The study first analyzes the impact of sovereign debt crises during the 1980s and 1990s. It goes on to examine the 1993 to 2007 period, using additional measures of sovereign risk-sovereign bond spreads and sovereign ratings-as explanatory variables. Overall, we find that sovereign default risk is a crucial determinant of private sector access to capital, be it external debt or equity. We also find that crisis resolution patterns matter and that defaults towards private creditors have stronger adverse consequences than defaults to official creditors.
Author: Mark Aguiar Publisher: Princeton University Press ISBN: 0691189242 Category : Business & Economics Languages : en Pages : 200
Book Description
An integrated approach to the economics of sovereign default Fiscal crises and sovereign default repeatedly threaten the stability and growth of economies around the world. Mark Aguiar and Manuel Amador provide a unified and tractable theoretical framework that elucidates the key economics behind sovereign debt markets, shedding light on the frictions and inefficiencies that prevent the smooth functioning of these markets, and proposing sensible approaches to sovereign debt management. The Economics of Sovereign Debt and Default looks at the core friction unique to sovereign debt—the lack of strong legal enforcement—and goes on to examine additional frictions such as deadweight costs of default, vulnerability to runs, the incentive to “dilute” existing creditors, and sovereign debt’s distortion of investment and growth. The book uses the tractable framework to isolate how each additional friction affects the equilibrium outcome, and illustrates its counterpart using state-of-the-art computational modeling. The novel approach presented here contrasts the outcome of a constrained efficient allocation—one chosen to maximize the joint surplus of creditors and government—with the competitive equilibrium outcome. This allows for a clear analysis of the extent to which equilibrium prices efficiently guide the government’s debt and default decisions, and of what drives divergences with the efficient outcome. Providing an integrated approach to sovereign debt and default, this incisive and authoritative book is an ideal resource for researchers and graduate students interested in this important topic.
Author: Mr.Tamon Asonuma
Author: Mr.Tamon Asonuma
Author: Tamon Asonuma
Author: Mr.Tamon Asonuma
Author: International Monetary Fund
Author: Tiago Gomes da Silva Tavares
Author: Mr. Serkan Arslanalp
Author: Mr.Tamon Asonuma
Author: Mr.Udaibir S. Das
Author: Luis Catão
Author: Mark Aguiar