Search results for " Debt."
showing 10 items of 151 documents
Pricing sovereign contingent convertible debt
2018
We develop a pricing model for Sovereign Contingent Convertible bonds (S-CoCo) with payment standstills triggered by a sovereign's Credit Default Swap (CDS) spread. We model CDS spread regime switching, which is prevalent during crises, as a hidden Markov process, coupled with a mean-reverting stochastic process of spread levels under fixed regimes, in order to obtain S-CoCo prices through simulation. The paper uses the pricing model in a Longstaff-Schwartz American option pricing framework to compute future state contingent S-CoCo prices for risk management. Dual trigger pricing is also discussed using the idiosyncratic CDS spread for the sovereign debt together with a broad market index. …
How Costly are Debt Crises?
2010
The aim of this paper is to assess the short- and medium-term impact of debt crises on GDP. Using an unbalanced panel of 154 countries from 1970 to 2008, the paper shows that debt crises produce significant and long-lasting output losses, reducing output by about 10 percent after eight years. The results also suggest that debt crises tend to be more detrimental than banking and currency crises. The significance of the results is robust to different specifications, identification and endogeneity checks, and datasets.
Repatriation of Debt in the Euro Crisis: Evidence for the Secondary Market Theory
2013
The Euro Crisis has marked a sharp inversion in the process of the European financial integration and, more specifically, a repatriation of countries' debt from foreign to domestic investors. Yet the drivers of the financial fragmentation remain unclear. This paper investigates the empirical patterns in light of competing theories of cross-border portfolio allocation. Three main empirical regularities stand out: i) the repatriation of debt occurred primarily in crisis countries; ii) the repatriation affected mainly public debt; iii) the public debt of crisis countries was reallocated to politically influential countries within the Euro Area. Standard theories of portfolio allocation and hom…
Public debt, money and consumer prices: a vector error correction model for Germany
2015
In the paper, the authors analyse the interaction between public debt and inflation including the mutual impulse response. The European sovereign debt crisis brought once again a focus onto the consequences of government debt in combination with an expansionary monetary policy for the development of consumer prices. Public deficits can lead to higher inflation rates if the money supply is expansionary. The high level of national debt, not only in the Euro-crisis countries, and the strong increase in the total assets of the European Central Bank, as a result of the unconventional monetary policy, have caused fears of inflating government debt. The transmission from public debt to inflation t…
Análisis de la sostenibilidad del sector exterior en la OCDE con técnicas de multicointegración
2022
Este artículo analiza la sostenibilidad externa de un grupo de 23 países de la OCDE durante el periodo 1970-2020. La estrategia empírica adoptada muestra la importancia del desequilibrio acumulado como desencadenante del ajuste externo, en línea con la propuesta de Gourinchas y Rey (2007). Para ello, contrastamos la sostenibilidad externa a través de la relación acumulado-flujo entre las variables que representan las relaciones externas de una economía abierta utilizando varios tipos de contrastes de cointegración y multicointegración. Los resultados obtenidos apuntan hacia la sostenibilidad en sentido débil en el análisis de los flujos, mientras que desde el punto de vista del enfoque acum…
THE IMPACT OF REGIONAL AND COHESION POLICY ON THE ECONOMIC DEVELOPMENT OF THE EU
2012
As the global financial and economic crisis hit the European Union, no country was left unharmed. To this day, the Member States share the burden of excessive foreign debt, inflation, budget deficit, high unemployment levels, shaken stability of the currency, and many more. Multiple responses were introduced to these damaging effects, including adopting changes to the use of the Globalisation Adjustment Fund, enabling a Financial Stability Mechanism for the Euro zone and introducing a number of micro-financing instruments, particularly to support SMEs. Nevertheless, these have all been short-term actions, which will not suffice to ensure a long-term, sustainable economic growth of the Europ…
The economic impact of European financial integration: The importance of the banking union
2015
Abstract The aim of the paper is to analyze the effect of European financial integration on economic growth. We focus on how the international financial crisis that started in 2007 has affected integration and growth. By combining information at country, sector and firm level, we quantify the effect of financial integration on financial development and therefore on economic growth. Our results illustrate that until the outbreak of the crisis, a significant part of financial development is attributable to progress in integration, with a positive contribution of around 0.04 pp to the EU-15 countries’ GDP growth over the period 1999–2007 of advance in integration. However, during the crisis, t…
Risk Profiles for Re-Profiling the Sovereign Debt of Crisis Countries
2014
This paper uses a risk-management approach to re-profile the sovereign debt of countries facing debt crises. Using scenario analysis we develop a risk measure of the sovereign's debt -- Conditional Debt-at-Risk -- and an optimization model is used to trace risk profiles that tradeoff expected cost of debt financing against the Conditional Debt-at-Risk. The risk profiles are particularly informative for crisis countries, as they allow us to identify, with high-probability, debt unsustainability. We develop risk profiles for two Eurozone countries with excessive debt, Cyprus and Italy, both in their current form and under various forms of restructuring or rescheduling, and show how to assess …
From the Global Crisis to the National Crises: The Case of the European Union Countries
2013
Abstract The aim of this paper is to examine the way in which the 2007 global financial crisis has emerged into more specific national ones. The interventionist policies responses have led to an intensification of the economic unhealthy situations in some countries of the European Union. At the same time through well-chosen economic policies other countries, managed to escape from the threat of collapse of their national economies.
Does politics matter in the conduct of fiscal policy? Political determinants of the fiscal sustainability: Evidence from seven individual Central and…
2007
This paper aims at assessing the fiscal sustainability and its political determinants in seven Central and Eastern European Countries (CEEC), namely Estonia, Latvia, Lithuania, Poland, Slovenia, Slovakia and the Czech Republic. First, using the recent sustainability approach of Bohn (1998) based on fiscal reaction function, econometric findings using Ordinary Least Squares (OLS) reveal a positive response of the primary surplus to changes in debt in several countries. In other words, fiscal policy is sustainable in Baltic countries, Slovenia and Slovakia, but not in Poland and in the Czech Republic. Second, by introducing political dummy variables, we test the electoral budget cycle and the…