Quantitative Properties Of Sovereign Default Models

Author : Mr.Leonardo Martinez
Publisher : International Monetary Fund
ISBN 13 : 1451982771
Total Pages : 30 pages
Book Rating : 4.70/5 ( download)

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Download or read book Quantitative properties of sovereign default models written by Mr.Leonardo Martinez and published by International Monetary Fund. This book was released on 2010-04-01 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the sovereign default model that has been used to account for the cyclical behavior of interest rates in emerging market economies. This model is often solved using the discrete state space technique with evenly spaced grid points. We show that this method necessitates a large number of grid points to avoid generating spurious interest rate movements. This makes the discrete state technique significantly more inefficient than using Chebyshev polynomials or cubic spline interpolation to approximate the value functions. We show that the inefficiency of the discrete state space technique is more severe for parameterizations that feature a high sensitivity of the bond price to the borrowing level for the borrowing levels that are observed more frequently in the simulations. In addition, we find that the efficiency of the discrete state space technique can be greatly improved by (i) finding the equilibrium as the limit of the equilibrium of the finite-horizon version of the model, instead of iterating separately on the value and bond price functions and (ii) concentrating grid points in asset levels at which the bond price is more sensitive to the borrowing level and in levels that are observed more often in the model simulations. Our analysis questions the robustness of results in the sovereign default literature and is also relevant for the study of other credit markets.

Author : Juan Carlos Hatchondo
Publisher :
ISBN 13 : 9781422319826
Total Pages : 35 pages
Book Rating : 4.22/5 ( download)

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Download or read book Quantitative Models of Sovereign Default and the Threat of Financial Exclusion written by Juan Carlos Hatchondo and published by . This book was released on 2008-01 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: Studies the role of the assumption that countries can be punished with financial exclusion after a sovereign default. It describes the business cycle properties of a sovereign default model with the exclusion punishment & compares them with those of the same model without the exclusion punishment. Both models build on the framework studied in Aguiar & Gopinath (2006). Finds that the presence of exclusion punishment is responsible for a high fraction of the sovereign debt that can be sustained in equilibrium. On the other hand, the cyclical behavior of consumption, output, interest rate, & net exports are not fundamentally different in the models with & without exclusion. Charts & tables.

Author : Nikolai Stahler
Publisher :
ISBN 13 :
Total Pages : 0 pages
Book Rating : 4.90/5 ( download)

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Download or read book Recent Developments in Quantitative Models of Sovereign Default written by Nikolai Stahler and published by . This book was released on 2013 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The current crisis and discussions, in the euro area in particular, show that sovereign debt crises/defaults are no longer confined to developing economies. Following crises in many Latin American countries, the literature on quantitative dynamic macro models of sovereign default has been advancing rapidly. Current debate should take note of the findings of this literature - an extensive overview of which has been provided in this paper. This paper also discusses the inherent difficulties as well as possibilities of integrating this type of model into standard business cycle models (RBC and DSGE models). This is likely to be particularly helpful when using models to analyse upcoming issues in the euro area, such as a suitable sovereign insolvency law or the assumption of joint liability.

Author : Mr.Enrique G. Mendoza
Publisher : International Monetary Fund
ISBN 13 : 146230222X
Total Pages : 56 pages
Book Rating : 4.22/5 ( download)

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Download or read book A General Equilibrium Model of Sovereign Default and Business Cycles written by Mr.Enrique G. Mendoza and published by International Monetary Fund. This book was released on 2011-07-01 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: Emerging markets business cycle models treat default risk as part of an exogenous interest rate on working capital, while sovereign default models treat income fluctuations as an exogenous endowment process with ad-noc default costs. We propose instead a general equilibrium model of both sovereign default and business cycles. In the model, some imported inputs require working capital financing; default on public and private obligations occurs simultaneously. The model explains several features of cyclical dynamics around default triggers an efficiency loss as these inputs are replaced by imperfect substitutes; and default on public and private obligations occurs simultaneously. The model explains several features of cyclical dynamics around deraults, countercyclical spreads, high debt ratios, and key business cycle moments.

Author : Mr.Leonardo Martinez
Publisher : International Monetary Fund
ISBN 13 : 1455227099
Total Pages : 28 pages
Book Rating : 4.99/5 ( download)

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Download or read book Debt Dilution and Sovereign Default Risk written by Mr.Leonardo Martinez and published by International Monetary Fund. This book was released on 2011-03-01 with total page 28 pages. 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.

Author : Juan Carlos Hatchondo
Publisher : International Monetary Fund
ISBN 13 : 1463933150
Total Pages : 28 pages
Book Rating : 4.59/5 ( download)

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Download or read book Fiscal Rules and the Sovereign Default Premium written by Juan Carlos Hatchondo and published by International Monetary Fund. This book was released on 2012-01-01 with total page 28 pages. 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.

Author : Rob Quail
Publisher : John Wiley & Sons
ISBN 13 : 1118017552
Total Pages : 435 pages
Book Rating : 4.55/5 ( download)

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Download or read book Sovereign Debt written by Rob Quail and published by John Wiley & Sons. This book was released on 2011-02-25 with total page 435 pages. Available in PDF, EPUB and Kindle. Book excerpt: An intelligent analysis of the dangers, opportunities, and consequences of global sovereign debt Sovereign debt is growing internationally at a terrifying rate, as nations seek to prop up their collapsing economies. One only needs to look at the sovereign risk pressures faced by Greece, Spain, and Ireland to get an idea of how big this problem has become. Understanding this dilemma is now more important than ever, that's why Robert Kolb has compiled Sovereign Debt. With this book as your guide, you'll gain a better perspective on the essential issues surrounding sovereign debt and default through discussions of national defaults, systemic risk, associated costs, and much more. Historical studies are also included to provide a realistic framework of reference. Contains up-to-date research and analysis on sovereign debt from today's leading practitioners and academics Details the dangers of defaults and their associated systemic risks Explores the past, present, and future of sovereign debt The repercussions of a national default are all-encompassing as global markets are intricately interwoven in the modern world. Sovereign Debt examines what it will take to overcome the challenges of this market and how you can deal with the uncertainty surrounding it.

Author : Mr. Francisco Roch
Publisher : International Monetary Fund
ISBN 13 : 1513572636
Total Pages : 38 pages
Book Rating : 4.35/5 ( download)

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Download or read book Uncertainty Premia, Sovereign Default Risk, and State-Contingent Debt written by Mr. Francisco Roch and published by International Monetary Fund. This book was released on 2021-03-12 with total page 38 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze how concerns for model misspecification on the part of international lenders affect the desirability of issuing state-contingent debt instruments in a standard sovereign default model à la Eaton and Gersovitz (1981). We show that for the commonly used threshold state-contingent bond structure (e.g., the GDP-linked bond issued by Argentina in 2005), the model with robustness generates ambiguity premia in bond spreads that can explain most of what the literature has labeled as novelty premium. While the government would be better off with this bond when facing rational expectations lenders, this additional source of premia leads to welfare losses when facing robust lenders. Finally, we characterize the optimal design of the state-contingent bond and show how it varies with the level of robustness. Our findings rationalize the little use of these instruments in practice and shed light on their optimal design.

Author : Juan Carlos Hatchondo
Publisher : International Monetary Fund
ISBN 13 : 1463948875
Total Pages : 28 pages
Book Rating : 4.70/5 ( download)

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Download or read book Fiscal Rules and the Sovereign Default Premium written by Juan Carlos Hatchondo and published by International Monetary Fund. This book was released on 2012-01-01 with total page 28 pages. 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.

Author : Nicola Gennaioli
Publisher : International Monetary Fund
ISBN 13 : 1498391990
Total Pages : 53 pages
Book Rating : 4.93/5 ( download)

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Download or read book Banks, Government Bonds, and Default written by Nicola Gennaioli and published by International Monetary Fund. This book was released on 2014-07-08 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: We analyze holdings of public bonds by over 20,000 banks in 191 countries, and the role of these bonds in 20 sovereign defaults over 1998-2012. Banks hold many public bonds (on average 9% of their assets), particularly in less financially-developed countries. During sovereign defaults, banks increase their exposure to public bonds, especially large banks and when expected bond returns are high. At the bank level, bondholdings correlate negatively with subsequent lending during sovereign defaults. This correlation is mostly due to bonds acquired in pre-default years. These findings shed light on alternative theories of the sovereign default-banking crisis nexus.