Optimal State Contingent Sovereign Debt Instruments
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Optimal State Contingent Sovereign Debt Instruments
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Author : Mr. Alejandro D Guerson
language : en
Publisher: International Monetary Fund
Release Date : 2021-09-10
Optimal State Contingent Sovereign Debt Instruments written by Mr. Alejandro D Guerson and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021-09-10 with Business & Economics categories.
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
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Author : Mr. Francisco Roch
language : en
Publisher: International Monetary Fund
Release Date : 2021-03-12
Uncertainty Premia Sovereign Default Risk And State Contingent Debt written by Mr. Francisco Roch and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021-03-12 with Business & Economics categories.
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
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Author : Deniz Igan
language : en
Publisher: International Monetary Fund
Release Date : 2021-12-03
The Premia On State Contingent Sovereign Debt Instruments written by Deniz Igan and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2021-12-03 with Business & Economics categories.
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.
The Role Of State Contingent Debt Instruments In Sovereign Debt Restructurings
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Author : Charles Cohen
language : en
Publisher: INTERNATIONAL MONETARY FUND
Release Date : 2020-11-19
The Role Of State Contingent Debt Instruments In Sovereign Debt Restructurings written by Charles Cohen and has been published by INTERNATIONAL MONETARY FUND this book supported file pdf, txt, epub, kindle and other format this book has been release on 2020-11-19 with Business & Economics categories.
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
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Author : International Monetary Fund. Asia and Pacific Dept
language : en
Publisher: International Monetary Fund
Release Date : 2017-05-22
State Contingent Debt Instruments For Sovereigns written by International Monetary Fund. Asia and Pacific Dept and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-05-22 with Business & Economics categories.
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.
State Contingent Debt Instruments For Sovereigns Annexes
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Author : International Monetary Fund. Asia and Pacific Dept
language : en
Publisher: International Monetary Fund
Release Date : 2017-05-22
State Contingent Debt Instruments For Sovereigns Annexes written by International Monetary Fund. Asia and Pacific Dept and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2017-05-22 with Business & Economics categories.
These annexes accompany the IMF Policy Paper State Contingent Debt Instruments for Sovereigns
A Primer On Managing Sovereign Debt Portfolio Risks
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Author : Thordur Jonasson
language : en
Publisher: International Monetary Fund
Release Date : 2018-04-06
A Primer On Managing Sovereign Debt Portfolio Risks written by Thordur Jonasson and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2018-04-06 with Business & Economics categories.
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
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Author : International Monetary Fund
language : en
Publisher: International Monetary Fund
Release Date : 2003-09-12
Guidelines For Public Debt Management Amended written by International Monetary Fund and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003-09-12 with Business & Economics categories.
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Sovereign Debt Restructurings 1950 2010
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Author : Mr.Udaibir S. Das
language : en
Publisher: International Monetary Fund
Release Date : 2012-08-01
Sovereign Debt Restructurings 1950 2010 written by Mr.Udaibir S. Das and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2012-08-01 with Business & Economics categories.
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
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Author : International Monetary Fund
language : en
Publisher: International Monetary Fund
Release Date : 2003-06-25
External Debt Statistics written by International Monetary Fund and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2003-06-25 with Business & Economics categories.
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.