Optimal State Contingent Sovereign Debt Instruments

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Optimal State Contingent Sovereign Debt Instruments

Mr. Alejandro D Guerson
Optimal State Contingent Sovereign Debt Instruments Book PDF

Author : Mr. Alejandro D Guerson
Publisher : International Monetary Fund
Page : 31 pages
File Size : 45,7 Mb
Release : 2021-09-10
Category : Business & Economics
ISBN : 9781513595917

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Optimal State Contingent Sovereign Debt Instruments by Mr. Alejandro D Guerson Pdf

This paper shows that the optimal sovereign lending contract is state-contingent when a government can default. It provides a theoretical basis for the specification of optimal state-contingent debt instruments (SCDIs) in countries subject to large shocks that can be observed and verified by all parties involved, such as natural disasters or global pandemics. The result is obtained as the endogenous solution to a contracting problem under time-inconsistency when a government cannot credibly commit to honor debt service obligations in all possible states of nature. It is shown that rational investors optimally offer SCDIs that include additional financing when the default constraint is binding, keeping the debtor engaged in the contractual relationship and avoiding asset loss. The debtor benefits because the contract implies net-positive financing when facing a large shock, increasing concurrent welfare, while maintaining access to financing in the future for consumption smoothing at the same terms as with precommitment. SCDIs require maintaining debt at a low level compared to the precommitment case, and also a fiscal consolidation when triggered to contain the increase in debt. Extension of the time inconsistency problem to add the taxation of capital returns shows that the optimal physical capital investment is also state-contingent.

Uncertainty Premia, Sovereign Default Risk, and State-Contingent Debt

Mr. Francisco Roch,Francisco Roldán
Uncertainty Premia Sovereign Default Risk and State Contingent Debt Book PDF

Author : Mr. Francisco Roch,Francisco Roldán
Publisher : International Monetary Fund
Page : 38 pages
File Size : 54,8 Mb
Release : 2021-03-12
Category : Business & Economics
ISBN : 9781513572635

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Uncertainty Premia, Sovereign Default Risk, and State-Contingent Debt by Mr. Francisco Roch,Francisco Roldán Pdf

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.

The Premia on State-Contingent Sovereign Debt Instruments

Deniz Igan,Mr. Taehoon Kim,Antoine Levy
The Premia on State Contingent Sovereign Debt Instruments Book PDF

Author : Deniz Igan,Mr. Taehoon Kim,Antoine Levy
Publisher : International Monetary Fund
Page : 48 pages
File Size : 43,5 Mb
Release : 2021-12-03
Category : Business & Economics
ISBN : 9781616357009

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The Premia on State-Contingent Sovereign Debt Instruments by Deniz Igan,Mr. Taehoon Kim,Antoine Levy Pdf

State-contingent debt instruments such as GDP-linked warrants have garnered attention as a potential tool to help debt-stressed economies smooth repayments over business cycles, yet very few studies of the empirical properties of these instruments exist. This paper develops a general f ramework to estimate the time-varying risk premium of a state-contingent sovereign debt instrument. Our estimation framework applied to GDP-linked warrants issued by Argentina, Greece, and Ukraine reveals three stylized facts: (i) the risk premium in state-contingent instruments is high and persistent; (ii) the risk premium exhibits a pro-cyclical pattern; and (iii) the liquidity premium is higher and more volatile than that for plain-vanilla government bonds issued by the same sovereign. We then present a model in which investors fear ambiguity and that can account for the cyclical properties of the risk premium.

State-Contingent Debt Instruments for Sovereigns

International Monetary Fund. Asia and Pacific Dept,International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Legal Dept.,International Monetary Fund. Monetary and Capital Markets Department
State Contingent Debt Instruments for Sovereigns Book PDF

Author : International Monetary Fund. Asia and Pacific Dept,International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Legal Dept.,International Monetary Fund. Monetary and Capital Markets Department
Publisher : International Monetary Fund
Page : 50 pages
File Size : 47,8 Mb
Release : 2017-05-22
Category : Business & Economics
ISBN : 9781498346818

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State-Contingent Debt Instruments for Sovereigns by International Monetary Fund. Asia and Pacific Dept,International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Legal Dept.,International Monetary Fund. Monetary and Capital Markets Department Pdf

Background. The case for sovereign state-contingent debt instruments (SCDIs) as a countercyclical and risk-sharing tool has been around for some time and remains appealing; but take-up has been limited. Earlier staff work had advocated the use of growth-indexed bonds in emerging markets and contingent financial instruments in low-income countries. In light of recent renewed interest among academics, policymakers, and market participants—staff has analyzed the conceptual and practical issues SCDIs raise with a view to accelerate the development of self-sustaining markets in these instruments. The analysis has benefited from broad consultations with both private market participants and policymakers. The economic case for SCDIs. By linking debt service to a measure of the sovereign’s capacity to pay, SCDIs can increase fiscal space, and thus allow greater policy flexibility in bad times. They can also broaden the sovereign’s investor base, open opportunities for risk diversification for investors, and enhance the resilience of the international financial system. Should SCDI issuance rise to account for a large share of public debt, it could also significantly reduce the incidence and cost of sovereign debt crises. Some potential complications require mitigation: a high novelty and liquidity premium demanded by investors in the early stage of market development; adverse selection and moral hazard risks; undesirable pricing effects on conventional debt; pro-cyclical investor demand; migration of excessive risk to the private sector; and adverse political economy incentives.

The Role of State-Contingent Debt Instruments in Sovereign Debt Restructurings

Charles Cohen,S. M. Ali Abbas,Myrvin Anthony,Tom Best,Mr.Peter Breuer,Hui Miao,Ms.Alla Myrvoda,Eriko Togo
The Role of State Contingent Debt Instruments in Sovereign Debt Restructurings Book PDF

Author : Charles Cohen,S. M. Ali Abbas,Myrvin Anthony,Tom Best,Mr.Peter Breuer,Hui Miao,Ms.Alla Myrvoda,Eriko Togo
Publisher : INTERNATIONAL MONETARY FUND
Page : 128 pages
File Size : 49,7 Mb
Release : 2020-11-19
Category : Business & Economics
ISBN : 1513556487

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The Role of State-Contingent Debt Instruments in Sovereign Debt Restructurings by Charles Cohen,S. M. Ali Abbas,Myrvin Anthony,Tom Best,Mr.Peter Breuer,Hui Miao,Ms.Alla Myrvoda,Eriko Togo Pdf

The COVID-19 crisis may lead to a series of costly and inefficient sovereign debt restructurings. Any such restructurings will likely take place during a period of great economic uncertainty, which may lead to protracted negotiations between creditors and debtors over recovery values, and potentially even relapses into default post-restructuring. State-contingent debt instruments (SCDIs) could play an important role in improving the outcomes of these restructurings.

State-Contingent Debt Instruments for Sovereigns - Annexes

International Monetary Fund. Asia and Pacific Dept,International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Legal Dept.,International Monetary Fund. Monetary and Capital Markets Department
State Contingent Debt Instruments for Sovereigns Annexes Book PDF

Author : International Monetary Fund. Asia and Pacific Dept,International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Legal Dept.,International Monetary Fund. Monetary and Capital Markets Department
Publisher : International Monetary Fund
Page : 56 pages
File Size : 53,9 Mb
Release : 2017-05-22
Category : Business & Economics
ISBN : 9781498346801

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State-Contingent Debt Instruments for Sovereigns - Annexes by International Monetary Fund. Asia and Pacific Dept,International Monetary Fund. Strategy, Policy, & Review Department,International Monetary Fund. Legal Dept.,International Monetary Fund. Monetary and Capital Markets Department Pdf

These annexes accompany the IMF Policy Paper State Contingent Debt Instruments for Sovereigns

A Primer on Managing Sovereign Debt-Portfolio Risks

Thordur Jonasson,Mr.Michael G. Papaioannou
A Primer on Managing Sovereign Debt Portfolio Risks Book PDF

Author : Thordur Jonasson,Mr.Michael G. Papaioannou
Publisher : International Monetary Fund
Page : 133 pages
File Size : 49,7 Mb
Release : 2018-04-06
Category : Business & Economics
ISBN : 9781484350546

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A Primer on Managing Sovereign Debt-Portfolio Risks by Thordur Jonasson,Mr.Michael G. Papaioannou Pdf

This paper provides an overview of sovereign debt portfolio risks and discusses various liability management operations (LMOs) and instruments used by public debt managers to mitigate these risks. Debt management strategies analyzed in the context of helping reach debt portfolio targets and attain desired portfolio structures. Also, the paper outlines how LMOs could be integrated into a debt management strategy and serve as policy tools to reduce potential debt portfolio vulnerabilities. Further, the paper presents operational issues faced by debt managers, including the need to develop a risk management framework, interactions of debt management with fiscal policy, monetary policy, and financial stability, as well as efficient government bond markets.

Guidelines for Public Debt Management -- Amended

International Monetary Fund,World Bank
Guidelines for Public Debt Management Amended Book PDF

Author : International Monetary Fund,World Bank
Publisher : International Monetary Fund
Page : 39 pages
File Size : 48,5 Mb
Release : 2003-09-12
Category : Business & Economics
ISBN : 9781498328920

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Guidelines for Public Debt Management -- Amended by International Monetary Fund,World Bank Pdf

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Sovereign Debt Restructurings 1950-2010

Mr.Udaibir S. Das,Mr.Michael G Papaioannou,Christoph Trebesch
Sovereign Debt Restructurings 1950 2010 Book PDF

Author : Mr.Udaibir S. Das,Mr.Michael G Papaioannou,Christoph Trebesch
Publisher : International Monetary Fund
Page : 128 pages
File Size : 50,9 Mb
Release : 2012-08-01
Category : Business & Economics
ISBN : 9781475505535

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Sovereign Debt Restructurings 1950-2010 by Mr.Udaibir S. Das,Mr.Michael G Papaioannou,Christoph Trebesch Pdf

This paper provides a comprehensive survey of pertinent issues on sovereign debt restructurings, based on a newly constructed database. This is the first complete dataset of sovereign restructuring cases, covering the six decades from 1950–2010; it includes 186 debt exchanges with foreign banks and bondholders, and 447 bilateral debt agreements with the Paris Club. We present new stylized facts on the outcome and process of debt restructurings, including on the size of haircuts, creditor participation, and legal aspects. In addition, the paper summarizes the relevant empirical literature, analyzes recent restructuring episodes, and discusses ongoing debates on crisis resolution mechanisms, credit default swaps, and the role of collective action clauses.

External Debt Statistics

International Monetary Fund
External Debt Statistics Book PDF

Author : International Monetary Fund
Publisher : International Monetary Fund
Page : 327 pages
File Size : 53,7 Mb
Release : 2003-06-25
Category : Business & Economics
ISBN : 9781589060609

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External Debt Statistics by International Monetary Fund Pdf

This Guide provides clear, up-to-date guidance on the concepts, definitions, and classifications of the gross external debt of the public and private sectors, and on the sources, compilation techniques, and analytical uses of these data. The Guide supersedes the previous international guidance on external debt statistics available in External Debt: Definition, Statistical Coverage, and Methodology (known as the Gray Book), 1988. The Guides conceptual framework derives from the System of National Accounts 1993 and the fifth edition of the IMFs Balance of Payments Manual(1993). Preparation of the Guide was undertaken by an Inter-Agency Task Force on Finance Statistics, chaired by the IMF and involving representatives from the BIS, the Commonwealth Secretariat, the European Central Bank, Eurostat, the OECD, the Paris Club Secretariat, UNCTAD, and the World Bank.

Research Handbook of Financial Markets

Refet S. Gürkaynak,Jonathan H. Wright
Research Handbook of Financial Markets Book PDF

Author : Refet S. Gürkaynak,Jonathan H. Wright
Publisher : Edward Elgar Publishing
Page : 533 pages
File Size : 53,5 Mb
Release : 2023-05-09
Category : Business & Economics
ISBN : 9781800375321

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Research Handbook of Financial Markets by Refet S. Gürkaynak,Jonathan H. Wright Pdf

The Research Handbook of Financial Markets carefully discusses the histories and current states of the most important financial markets and institutions, as well as explicitly underscoring open questions that need study. By describing the institutional structure of different markets and highlighting recent changes within them, it accurately highlights their evolving nature.

Global Waves of Debt

M. Ayhan Kose,Peter Nagle,Franziska Ohnsorge,Naotaka Sugawara
Global Waves of Debt Book PDF

Author : M. Ayhan Kose,Peter Nagle,Franziska Ohnsorge,Naotaka Sugawara
Publisher : World Bank Publications
Page : 403 pages
File Size : 52,9 Mb
Release : 2021-03-03
Category : Business & Economics
ISBN : 9781464815454

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Global Waves of Debt by M. Ayhan Kose,Peter Nagle,Franziska Ohnsorge,Naotaka Sugawara Pdf

The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.

Planning and Mainstreaming Adaptation to Climate Change in Fiscal Policy

Emanuele Massetti,Mr. Matthieu Bellon
Planning and Mainstreaming Adaptation to Climate Change in Fiscal Policy Book PDF

Author : Emanuele Massetti,Mr. Matthieu Bellon
Publisher : International Monetary Fund
Page : 28 pages
File Size : 43,6 Mb
Release : 2022-03-23
Category : Business & Economics
ISBN : 9798400201950

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Planning and Mainstreaming Adaptation to Climate Change in Fiscal Policy by Emanuele Massetti,Mr. Matthieu Bellon Pdf

This Staff Climate Note is part of a series of three Notes (IMF Staff Climate Note 2022/001, 2022/002, and 2022/003) that discuss fiscal policies for climate change adaptation. A first Note (Bellon and Massetti 2022, henceforth Note 1) examines the economic principles that can guide the integration of climate change adaptation into fiscal policy. It argues that climate change adaptation should be part of a holistic, sustainable, and equitable development strategy. To maximize the impact of scarce resources, governments need to prioritize among all development programs, including but not limited to adaptation. To this end, they can use cost-benefit analysis while ensuring that the decision-making process reflects society’s preferences about equity and uncertainty. A second Note (Aligishiev, Bellon, and Massetti. 2022, henceforth Note 2) discusses the macro-fiscal implications of climate change adaptation. It reviews evidence on the effectiveness of adaptation at reducing climate change damages, on residual risks, and on adaptation investment needs, and suggests ways to integrate climate risks and adaptation costs into national macro-fiscal frameworks with the goal of guiding fiscal policy. It stresses that lower-income vulnerable countries, which have typically not contributed much to climate change, face exacerbated challenges that warrant increased international support. This third Note considers how to translate adaptation principles and estimates of climate impacts into effective policies.

Managing the Sovereign-Bank Nexus

Mr.Giovanni Dell'Ariccia,Caio Ferreira,Nigel Jenkinson,Mr.Luc Laeven,Alberto Martin,Ms.Camelia Minoiu,Alex Popov
Managing the Sovereign Bank Nexus Book PDF

Author : Mr.Giovanni Dell'Ariccia,Caio Ferreira,Nigel Jenkinson,Mr.Luc Laeven,Alberto Martin,Ms.Camelia Minoiu,Alex Popov
Publisher : International Monetary Fund
Page : 54 pages
File Size : 49,8 Mb
Release : 2018-09-07
Category : Business & Economics
ISBN : 9781484359624

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Managing the Sovereign-Bank Nexus by Mr.Giovanni Dell'Ariccia,Caio Ferreira,Nigel Jenkinson,Mr.Luc Laeven,Alberto Martin,Ms.Camelia Minoiu,Alex Popov Pdf

This paper reviews empirical and theoretical work on the links between banks and their governments (the bank-sovereign nexus). How significant is this nexus? What do we know about it? To what extent is it a source of concern? What is the role of policy intervention? The paper concludes with a review of recent policy proposals.

Issuing International Sovereign Bonds

Mr.Mauro Mecagni,Mr.Jorge I Canales Kriljenko,Cheikh A. Gueye,Mr.Yibin Mu,Mr.Masafumi Yabara,Mr.Sebastian Weber
Issuing International Sovereign Bonds Book PDF

Author : Mr.Mauro Mecagni,Mr.Jorge I Canales Kriljenko,Cheikh A. Gueye,Mr.Yibin Mu,Mr.Masafumi Yabara,Mr.Sebastian Weber
Publisher : International Monetary Fund
Page : 37 pages
File Size : 42,8 Mb
Release : 2014-06-04
Category : Business & Economics
ISBN : 9781475523102

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Issuing International Sovereign Bonds by Mr.Mauro Mecagni,Mr.Jorge I Canales Kriljenko,Cheikh A. Gueye,Mr.Yibin Mu,Mr.Masafumi Yabara,Mr.Sebastian Weber Pdf

This African Department Paper examines the rise in international sovereign bonds issued by African frontier economies and recommends policies for potential first-time issuers.