Optimal Maturity Structure Of Sovereign Debt In Situation Of Near Default

Author : Gabriel Desgranges
Publisher : International Monetary Fund
ISBN 13 : 149837977X
Total Pages : 43 pages
Book Rating : 4.79/5 ( download)

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Download or read book Optimal Maturity Structure of Sovereign Debt in Situation of Near Default written by Gabriel Desgranges and published by International Monetary Fund. This book was released on 2014-09-12 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the relationship between default and the maturity structure of the debt portfolio of a Sovereign, under uncertainty. The Sovereign faces a trade-off between a future costly default and a high current fiscal effort. This results into a debt crisis in case a large initial issuance of long term debt is followed by a sequence of negative macro shocks. Prior uncertainty about future fundamentals is then a source of default through its effect on long term interest rates and the optimal debt issuance. Intuitively, the Sovereign chooses a portfolio implying a risk of default because this risk generates a correlation between the future value of long term debt and future fundamentals. Long term debt serves as a hedging instrument against the risk on fundamentals. When expected fundamentals are high, the Sovereign issues a large amount of long term debt, the expected default probability increases, and so does the long term interest rate.

Author : Gabriel Desgranges
Publisher :
ISBN 13 :
Total Pages : 42 pages
Book Rating : 4.26/5 ( download)

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Download or read book Optimal Maturity Structure of Sovereign Debt in Situations of Near Default written by Gabriel Desgranges and published by . This book was released on 2014 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Author : Diego J. Perez
Publisher :
ISBN 13 :
Total Pages : 44 pages
Book Rating : 4.35/5 ( download)

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Download or read book Sovereign Debt Maturity Structure Under Asymmetric Information written by Diego J. Perez and published by . This book was released on 2013 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Author : Gabriel Desgranges
Publisher : International Monetary Fund
ISBN 13 : 1498330436
Total Pages : 43 pages
Book Rating : 4.35/5 ( download)

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Download or read book Optimal Maturity Structure of Sovereign Debt in Situation of Near Default written by Gabriel Desgranges and published by International Monetary Fund. This book was released on 2014-09-12 with total page 43 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the relationship between default and the maturity structure of the debt portfolio of a Sovereign, under uncertainty. The Sovereign faces a trade-off between a future costly default and a high current fiscal effort. This results into a debt crisis in case a large initial issuance of long term debt is followed by a sequence of negative macro shocks. Prior uncertainty about future fundamentals is then a source of default through its effect on long term interest rates and the optimal debt issuance. Intuitively, the Sovereign chooses a portfolio implying a risk of default because this risk generates a correlation between the future value of long term debt and future fundamentals. Long term debt serves as a hedging instrument against the risk on fundamentals. When expected fundamentals are high, the Sovereign issues a large amount of long term debt, the expected default probability increases, and so does the long term interest rate.

Author : Mr. Philip Barrett
Publisher : International Monetary Fund
ISBN 13 : 1513582518
Total Pages : 74 pages
Book Rating : 4.11/5 ( download)

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Download or read book Parameterizing Debt Maturity written by Mr. Philip Barrett and published by International Monetary Fund. This book was released on 2021-04-23 with total page 74 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines ways to summarize the maturity structure of public debts using a small number of parameters. We compile a novel dataset of all promised future payments for US and UK government debt from every month since 1869, and more recently for Peru, Poland, Egypt, and Nigeria. We show that there is a unique parametric form which does not arbitrarily restrict debt issuance – portfolios of bonds with exponential coupons. Compared to the most popular alternative, this form 1) more accurately describes changes in debt maturity for these six countries and 2) gives a quite different interpretation of historical debt maturity. Our work can be applied not just to analyze past debt movements, but – because parameter estimates are relatively similar across countries – also for monitoring changes in debt maturity, including in countries where data are partial or incomplete.

Author : Cristina Arellano
Publisher :
ISBN 13 :
Total Pages : pages
Book Rating : 4.90/5 ( download)

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Download or read book Default and the Maturity Structure in Sovereign Bonds written by Cristina Arellano and published by . This book was released on 2015 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies the maturity composition and the term structure of interest rate spreads of government debt in emerging markets. In the data, when interest rate spreads rise, debt maturity shortens and the spread on short-term bonds is higher than on long-term bonds. To account for this pattern, we build a dynamic model of international borrowing with endogenous default and multiple maturities of debt. Short-term debt can deliver higher immediate consumption than long-term debt; large long-term loans are not available because the borrower cannot commit to save in the near future towards repayment in the far future. However, issuing long-term debt can insure against the need to roll-over short-term debt at high interest rate spreads. The trade-off between these two benefits is quantitatively important for understanding the maturity composition in emerging markets. When calibrated to data from Brazil, the model matches the dynamics in the maturity of debt issuances and its co-movement with the level of spreads across maturities.

Author : Francesco Drudi
Publisher :
ISBN 13 :
Total Pages : 58 pages
Book Rating : 4.93/5 ( download)

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Download or read book Real Interest Rates, Sovereign Risk and Optimal Debt Management written by Francesco Drudi and published by . This book was released on 1996 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Author : Gabriel P. Mihalache
Publisher :
ISBN 13 :
Total Pages : 101 pages
Book Rating : 4.19/5 ( download)

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Download or read book Essays on Debt Maturity and Default written by Gabriel P. Mihalache and published by . This book was released on 2016 with total page 101 pages. Available in PDF, EPUB and Kindle. Book excerpt: "This dissertation consists of three essays concerning the way in which emerging market governments actively manage the maturity structure of their external, public debt, and the consequences of this behavior for their capital accounts, cost of borrowing, and default frequency. Each chapter employs quantitative-theoretic, macroeconomic methods to address outstanding puzzles in the literature or, as in the case of Chapter 3, new concerns about the data and assumptions customarily used when addressing these topics. The first chapter studies the debt restructuring process, which is eventually triggered following default. The empirical literature shows that increases in the maturity of debt provide the bulk of debt relief, during these proceedings. Countries emerge with a greater share of their debt in the form of long-term bonds, compared to what they owed at the time of default. A standard maturity choice model, once augmented with a renegotiation stage, is unable to replicate this critical feature of the data. We draw sharp parallels between the choice of maturity at the time of issuance and during the swap in order to explain this negative result. Introducing stochastic political turnover, due to which policy becomes more or less impatient over time, can solve the puzzle and explain observed outcomes. We interpret this finding as providing additional evidence on the role of political economy frictions in emerging markets. The second Chapter turns to the main outstanding puzzle in the debt maturity literature, which is the finding that, during bad times, emerging markets borrow using short-term debt. Using Bloomberg bond data for eleven emerging economies, we document that countries react to crises by issuing debt with shorter maturity but that, critically, they back-load payment schedules. To account for this pattern, we develop a sovereign default model with an endogenous choice of debt maturity and payment schedule. In the model, during recessions, the country prefers its payments to be more back-loaded--delaying relatively larger payments--to smooth consumption. However, such a back-loaded schedule is expensive given that later payments carry higher default risk. To reduce borrowing costs, the country optimally shortens maturity. When calibrated to the Brazilian data, the model can rationalize the observed patterns of maturity and payment schedule, as an optimal trade-off between consumption smoothing and endogenous borrowing cost. The last Chapter concerns the use of seasonally-adjusted time series in the calibration and evaluation of macroeconomic models. We argue that in the case of nonlinear models in general, and for sovereign default models in particular, such a practice is liable to yield misleading results and targets for quantitative work. We illustrate this point by constructing and calibrating a sovereign debt and default model which nests several salient cases from the literature. We find that allowing for long-term debt eliminates a counterfactual seasonal pattern in asset prices, exhibited by the benchmark, one-period debt model."--Pages iv-v.

Author : S. Ali Abbas
Publisher : Oxford University Press
ISBN 13 : 0192591398
Total Pages : 288 pages
Book Rating : 4.95/5 ( download)

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Download or read book Sovereign Debt written by S. Ali Abbas and published by Oxford University Press. This book was released on 2019-10-21 with total page 288 pages. Available in PDF, EPUB and Kindle. Book excerpt: The last time global sovereign debt reached the level seen today was at the end of the Second World War, and this shaped a generation of economic policymaking. International institutions were transformed, country policies were often draconian and distortive, and many crises ensued. By the early 1970s, when debt fell back to pre-war levels, the world was radically different. It is likely that changes of a similar magnitude -for better and for worse - will play out over coming decades. Sovereign Debt: A Guide for Economists and Practitioners is an attempt to build some structure around the issues of sovereign debt to help guide economists, practitioners and policymakers through this complicated, but not intractable, subject. Sovereign Debt brings together some of the world's leading researchers and specialists in sovereign debt to cover a range of sub-disciplines within this vast topic. It explores debt management with debt sustainability; debt reduction policies with crisis prevention policies; and the history with the conjuncture. It is a foundation text for all those interested in sovereign debt, with a particular focus real world examples and issues.

Author : Stéphane Guibaud
Publisher :
ISBN 13 :
Total Pages : 62 pages
Book Rating : 4.07/5 ( download)

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Download or read book Bond Market Clienteles, the Yield Curve, and the Optimal Maturity Structure of Government Debt written by Stéphane Guibaud and published by . This book was released on 2013 with total page 62 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a clientele-based model of the yield curve and optimal maturity structure of government debt. Clienteles are generations of agents at different lifecycle stages in an overlapping-generations economy. An optimal maturity structure exists in the absence of distortionary taxes and induces efficient intergenerational risksharing. If agents are more risk-averse than log, then an increase in the long-horizon clientele raises the price and optimal supply of long-term bonds-effects that we also confirm empirically in a panel of OECD countries. Moreover, under the optimal maturity structure, catering to clienteles is limited and long-term bonds earn negative expected excess returns.