Sovereign defaults by currency denomination

Jeanneret, Alexandre; Souissi, Slim

doi:10.1016/j.jimonfin.2015.03.004

Cited by 31 publications

(12 citation statements)

References 49 publications

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“…Another related strand of literature uses foreign versus domestic currency defaults as the dependent variable. As noted earlier, Reinhart and Rogoff document the frequency of the two types of sovereign default, but in terms of assessing the determinants of the two types, the principal reference is now the recently published work of Jeanneret and Souissi (2016). They find evidence consistent with some of the above-mentioned hypotheses: ie, a larger banking sector would make a sovereign less likely to default on domestic debt.…”

Section: Related Literaturementioning

confidence: 86%

“…We found the level of bank exposure to government debt, measured as a percent of total bank assets, provided more consistent results than an interactive term which multiplied this exposure times the overall level of credit. This variable is also used inGennaioli et al (2014).29 This result contrasts with that ofJeanneret and Souissi (2016), who provide evidence that global volatility does not help to explain the frequency of sovereign defaults in either local or foreign currency.…”

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confidence: 99%

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Does sovereign risk in local and foreign currency differ?

Amstad

Packer²,

Shek³

2020

Journal of International Money and Finance

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Historically, sovereign debt in local currency has been considered safer than debt in foreign currency. The literature offers scant theoretical or empirical guidance as to why such a gap has existed or why it appears to have slowly and steadily diminished for all regions over the past two decades, as expressed in the credit ratings widely used by global investors and regulators to assess credit risk. We suggest and empirically test five hypotheses. We find the assessed differences between local and foreign currency credit risk to not be driven by changes in inflation. The banking sector's vulnerability to sovereign debt problems is a significant determinant of the gap, but does not account for the declining spread over time. Instead, the surge in global reserves, and to lesser extent the declining dependence on foreign currency borrowing overseas (decline of original sin), as well as lower global volatility, appear to have diminished the gap. In case of a trend reversal of these variables, there could be a widening of the gap going forward.

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Section: Related Literaturementioning

confidence: 86%

mentioning

confidence: 99%

Does sovereign risk in local and foreign currency differ?

Amstad

Packer²,

Shek³

2020

Journal of International Money and Finance

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“…These two papers show that the set of countries that can borrow internationally in their domestic currency is quite limited, mainly to G-3 countries, with a few surprises such as Poland, South Africa, and Taiwan. The Bank for International Settlements similarly documents that outstanding international debt securities are denominated in only four currencies, namely the US dollar, the pound sterling, the euro, and the Japanese yen (quoted in Jeanneret and Souissi 2016).…”

Section: Sudden Stops and Speculative Exchange Rate Crises Even Bementioning

confidence: 99%

The Empirical and Institutional Limits of Modern Money Theory

Epstein

2020

Review of Radical Political Economics

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Modern Money Theory (MMT) economists acknowledge a number of empirical and institutional limitations on the applicability of MMT to macroeconomic policy, but they have not attempted to explore these empirically nor have they adequately addressed their implications for MMT’s main macroeconomic policy proposals. This paper identifies some of these important limitations, including those stemming from modern international financial markets, and argues that they are much more binding on the policy applicability of MMT than many of MMT’s advocates appear to recognize.

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“…Based on the evidence fromJeanneret and Souissi (2016), defaults on local currency debt are as likely as defaults on foreign currency debt. Thus, selective defaults appears to be of a second order importance.10 We also set a lower bound for the government's savings.…”

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confidence: 99%

Domestic and External Sovereign Debt

Casola

Sichlimiris

2017

SSRN Journal

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Why do countries tend to repay their domestic and external debt, even though the legal enforcement of the sovereign debt contract is limited? Contrary to conventional wisdom, we argue that temporary market exclusion after default is costly. When the domestic financial market is characterized by a scarcity of private saving instruments, a government can partition its debt market into domestic and external segments, by restricting capital flows, to exploit its market power. The government's market power mitigates the problem of limited commitment, by making default a more costly option. Consequently, it extends the government's external debt capacity. We replicate the domestic and external sovereign debt for non-advanced economies, by unveiling their link to financial repression.

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Sovereign defaults by currency denomination

Cited by 31 publications

References 49 publications

Does sovereign risk in local and foreign currency differ?

Does sovereign risk in local and foreign currency differ?

The Empirical and Institutional Limits of Modern Money Theory

Domestic and External Sovereign Debt

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