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Fiscal Rules and the Sovereign Default Premium

2012-01-01 Business & Economics
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Release : 2012-01-01
Genre : Business & Economics
Kind : eBook
Book Rating : 150/5 ( reviews)

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Book Synopsis Fiscal Rules and the Sovereign Default Premium by : Juan Carlos Hatchondo

Download or read book Fiscal Rules and the Sovereign Default Premium written by Juan Carlos Hatchondo. This book was released on 2012-01-01. Available in PDF, EPUB and Kindle. Book excerpt: This paper finds optimal fiscal rule parameter values and measures the effects of imposing fiscal rules using a default model calibrated to an economy that in the absence of a fiscal rule pays a significant sovereign default premium. The paper also studies the case in which the government conducts a voluntary debt restructuring to capture the capital gains from the increase in its debt market value implied by a rule announcement. In addition, the paper shows how debt ceilings may reduce the procyclicality of fiscal policy and thus consumption volatility.

Fiscal Rules and the Sovereign Default Premium

2012-01-01 Business & Economics
Download Fiscal Rules and the Sovereign Default Premium PDF Online Free

Author :
Release : 2012-01-01
Genre : Business & Economics
Kind : eBook
Book Rating : 875/5 ( reviews)

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Book Synopsis Fiscal Rules and the Sovereign Default Premium by : Juan Carlos Hatchondo

Download or read book Fiscal Rules and the Sovereign Default Premium written by Juan Carlos Hatchondo. This book was released on 2012-01-01. Available in PDF, EPUB and Kindle. Book excerpt: This paper finds optimal fiscal rule parameter values and measures the effects of imposing fiscal rules using a default model calibrated to an economy that in the absence of a fiscal rule pays a significant sovereign default premium. The paper also studies the case in which the government conducts a voluntary debt restructuring to capture the capital gains from the increase in its debt market value implied by a rule announcement. In addition, the paper shows how debt ceilings may reduce the procyclicality of fiscal policy and thus consumption volatility.

Debt Dilution and Sovereign Default Risk

2011-03-01 Business & Economics
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Release : 2011-03-01
Genre : Business & Economics
Kind : eBook
Book Rating : 045/5 ( reviews)

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Book Synopsis Debt Dilution and Sovereign Default Risk by : Dr. Leonardo Martinez

Download or read book Debt Dilution and Sovereign Default Risk written by Dr. Leonardo Martinez. This book was released on 2011-03-01. Available in PDF, EPUB and Kindle. Book excerpt: We propose a modification to a baseline sovereign default framework that allows us to quantify the importance of debt dilution in accounting for the level and volatility of the interest rate spread paid by sovereigns. We measure the effects of debt dilution by comparing the simulations of the baseline model (with debt dilution) with the ones of the modified model without dilution. We calibrate the baseline model to mimic the mean and standard deviation of the spread, as well as the external debt level, the mean debt duration and a measure of default frequency in the data. We find that, even without commitment to future repayment policies and withoutcontingency of sovereign debt, if the sovereign could eliminate debt dilution, the number of default per 100 years decreases from 3.10 to 0.42. The mean spread decreases from 7.38% to 0.57%. The standard deviation of the spread decreases from 2.45 to 0.72. Default risk falls in part because of a reduction of the level of sovereign debt (36% of the face value and of 11% of the market value). But we show that the most important effect of dilution on default risk results from a shift in the set of government''s borrowing opportunities. Our analysis is also relevant for the study of other credit markets where the debt dilution problem could be present.

Sovereign Debt

2022-06-17 Business & Economics
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Release : 2022-06-17
Genre : Business & Economics
Kind : eBook
Book Rating : /5 ( reviews)

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Book Synopsis Sovereign Debt by : Mr. Leonardo Martinez

Download or read book Sovereign Debt written by Mr. Leonardo Martinez. This book was released on 2022-06-17. Available in PDF, EPUB and Kindle. Book excerpt: This paper surveys the literature on sovereign debt from the perspective of understanding how sovereign debt differs from privately issue debt, and why sovereign debt is deemed safe in some countries but risky in others. The answers relate to the unique power of the sovereign. One the one hand, a sovereign has the power to tax, making debt relatively safe; on the other, it also has control over its territory and most of its assets, making debt enforcement difficult. The paper discusses debt contracts and the sovereign debt market, sovereign debt restructurings, and the empirical and theoretical literatures on the costs and causes of defaults. It describes the adverse impact of sovereign default risk on the issuing countries and what explains this impact. The survey concludes with a discussion of policy options to reduce sovereign risk, including fiscal frameworks that act as commitment devices, state-contingent debt, and independent and credible monetary policy.

Sovereign Default Risk, Fiscal Adjustment, and Debt Renegotiation

2017
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Release : 2017
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Book Rating : /5 ( reviews)

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Book Synopsis Sovereign Default Risk, Fiscal Adjustment, and Debt Renegotiation by : Hyungseok Joo

Download or read book Sovereign Default Risk, Fiscal Adjustment, and Debt Renegotiation written by Hyungseok Joo. This book was released on 2017. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the effects of government capital accumulation on sovereign debt default risk and debt restructuring renegotiation outcomes when government has limited ability to extract revenues from households. We develop a quantitative dynamic stochastic general equilibrium model of sovereign default, debt renegotiation, and fiscal policies, where government chooses between the fiscal instruments of government consumption and government investment. Government capital provides an additional means of adjustment in the face of a bad productivity shock. It also affects government's incentive to re-access the international credit market when a country chooses to default. We implement fiscal policies and rules that restrict foreign debt, especially focusing on how fiscal rules affect government spending dynamics. The model delivers three key predictions. (1) A higher level of government capital implies less risky sovereign debt and higher recovery rates when the government chooses to default. (2) A high debt to output ratio is possible with a sufficient level of government capital. (3) Fiscal adjustment that reduces public investment may be self-defeating.

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