In Sickness and in Debt: The COVID-19 Impact on Sovereign Credit Risk

Augustin, Patrick; Sokolovski, Valeri; Subrahmanyam, Marti G.; Tomio, Davide

doi:10.2139/ssrn.3613432

Cited by 13 publications

(5 citation statements)

References 34 publications

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“…The European Commission allowed ECAs to support short-term credit for developed countries and also to provide special programmes, such as long-term guarantees covering bank loans. Moreover, the increase in both sovereign and corporate credit risk is analysed by Augustin et al (2020), who confirm our expectations.…”

Section: Introductionsupporting

confidence: 84%

Fair Insurance Cover for Export Credit Under OECD Pricing Framework

Pýcha¹

2021

Prague Economic Papers

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This article aims to analyse the issue of a lack of rules on the insurance cover of interest from an OECD perspective during the period 2010-2020. Export credit agencies (ECAs) support export and apply minimum premium rates (MPRs) to the principal amount only, while the insurance agreement covers also the interest amount. This area can be described as a grey zone, because ECAs can decide themselves what cover they provide for a limited price. This paper explains which parts of a lending rate should be covered under credit insurance and provides theoretical and empirical analysis of the maximum extent of interest cover. The extent of such cover is closely related to the return on ECAs' investments. An excessive amount of interest cover creates room for market failures such as moral hazard or adverse selection, which have a negative impact on the domestic economy. The right amount of interest cover, on the other hand, guarantees long-term sustainability and a level playing field among ECAs, as the OECD requires.

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Section: Introductionsupporting

confidence: 84%

Fair Insurance Cover for Export Credit Under OECD Pricing Framework

Pýcha¹

2021

Prague Economic Papers

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“…These two approaches complement each other and provide useful lessons for the optimal design of fiscal rules. 10 In the next subsections, I discuss what the tradeoff between commitment and flexibility implies for various features of fiscal rules in theory and in practice.…”

Section: Commitment Versus Flexibilitymentioning

confidence: 99%

Rising Government Debt: Causes and Solutions for a Decades-Old Trend

Yared

2019

Journal of Economic Perspectives

141

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Over the past four decades, government debt as a fraction of GDP has been on an upward trajectory in advanced economies, approaching levels not reached since World War II. While normative macroeconomic theories can explain the increase in the level of debt in certain periods as a response to macroeconomic shocks, they cannot explain the broad-based long-run trend in debt accumulation. In contrast, political economy theories can explain the long-run trend as resulting from an aging population, rising political polarization, and rising electoral uncertainty across advanced economies. These theories emphasize the time-inconsistency in government policymaking, and thus the need for fiscal rules that restrict policymakers. Fiscal rules trade off commitment to not overspend and flexibility to react to shocks. This tradeoff guides design features of optimal rules, such as information dependence, enforcement, cross-country coordination, escape clauses, and instrument versus target criteria.

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“…Bahaj and Reis (2020) show CIP deviations in the current crisis and point to strain in dollar funding markets. Finally, Gormsen and Koijen (2020) take a more fundamental approach to study the impact of COVID-19 on future growth expectations by studying dividend futures, while Augustin et al (2020) focus on sovereign credit risk.…”

mentioning

confidence: 99%

When Selling Becomes Viral: Disruptions in Debt Markets in the COVID-19 Crisis and the Fed’s Response

Haddad

Moreira

Muir

2021

The Review of Financial Studies

237

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We document extreme disruption in debt markets during the COVID-19 crisis: a severe price crash accompanied by significant dislocations at the safer end of the credit spectrum. Investment-grade corporate bonds traded at a discount to credit default swaps; exchange-traded funds traded at a discount to net asset value, more so for safer bonds. The Federal Reserve’s announcement of corporate bond purchases caused these dislocations to disappear and prices to recover. These facts inform potential theories of the disruption. The best explanation is an acute liquidity need for specific bond investors, such as mutual funds, leading them to liquidate large positions.

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In Sickness and in Debt: The COVID-19 Impact on Sovereign Credit Risk

Cited by 13 publications

References 34 publications

Fair Insurance Cover for Export Credit Under OECD Pricing Framework

Fair Insurance Cover for Export Credit Under OECD Pricing Framework

Rising Government Debt: Causes and Solutions for a Decades-Old Trend

When Selling Becomes Viral: Disruptions in Debt Markets in the COVID-19 Crisis and the Fed’s Response

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