{"title":"Monetary Policy and Liquid Government Debt","authors":"D. Andolfatto, F. Martin","doi":"10.20955/wp.2018.002","DOIUrl":"https://doi.org/10.20955/wp.2018.002","url":null,"abstract":"Abstract We examine the conduct of monetary policy in a world where the supply of outside money is controlled by the fiscal authority–a scenario increasingly relevant for many developed economies today. Central bank control over the long-run inflation rate depends on whether fiscal policy is Ricardian or Non-Ricardian. The optimal monetary policy follows a generalized Friedman rule that eliminates the liquidity premium on scarce treasury debt. We derive conditions for determinacy under both fiscal regimes and show that they do not necessarily correspond to the Taylor principle. In addition, Non-Ricardian regimes may suffer from multiplicity of steady-states when the government runs persistent deficits.","PeriodicalId":360770,"journal":{"name":"ERN: Debt; Debt Management (Topic)","volume":"137 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2018-01-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115711677","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Determinants of Yield Spread in the Government of India Bond Markets","authors":"K. Rathi, H. Pradhan","doi":"10.2139/ssrn.3104333","DOIUrl":"https://doi.org/10.2139/ssrn.3104333","url":null,"abstract":"Yield on Government Bonds form the benchmark “risk free rate of return” for the pricing of all financial assets and their derivatives. Yield spread of government bonds is an indicator of efficiency of the treasury market, which is essential for an effective monetary policy. This is one of the first papers on Indian government bond market, with specific focus on yield spread. Using the NSE’s N-S method based ZCYC, and including 186,279 bond trades, over the period 2006-2012, this paper attempts to identify the determinants of yield spread of Government of India Bonds, controlling for various bond specific characteristics. Additionally it also examines the interaction of illiquidity, maturity in both normal, and crisis periods, and analyses the weekly changes in spread to explore the presence of AR(1) process in weekly changes. This paper finds that trades, trade interval, turnover, and coupon are the key determinants of yield spread in the Government of India bond market. Turnover with a negative coefficient of -137 bp, has the maximum impact on spread. Outstanding volume has a positive impact on higher duration trades during crisis period and a negative impact during the normal period. While examining the determinants of changes in yield spread, it is found that previous week’s change in spread has a significant dampening effect. Further the changes in yield spread are positively influenced by trading volume and price dispersion measure, and negatively by changes in spread. Counter intuitively changes in trade interval negatively and significantly influence the changes in yield spreads.","PeriodicalId":360770,"journal":{"name":"ERN: Debt; Debt Management (Topic)","volume":"84 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-12-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114286342","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Contingent Claims Analysis of Sovereign Default Risk in the Eurozone","authors":"Dennis Kahlert, N. Wagner, Ludwig Weipert","doi":"10.2139/ssrn.2957385","DOIUrl":"https://doi.org/10.2139/ssrn.2957385","url":null,"abstract":"We study sovereign default risk as measured by credit default swap (CDS) spreads of Eurozone member states between 2008 and 2016. Applying a structural credit risk model we analyze to what extent contingent claims analysis can explain spreads given fundamental balance sheet information. First results confirm that market implied default risk is hardly explainable by available fundamentals. We therefore model the asset value with a jump-diffusion process, which we calibrate to market implied default probabilities. The resulting jump intensities are substantial for both, distressed as well as non-distressed countries. By extending the jump-diffusion model and considering the first-passage time default possibility, our model is able to represent more realistic proportions of jump and pure diffusion risk. Including the first-passage time feature and analyzing conditional default probabilities via correlated jump-diffusion processes further contributes to the analysis of credit contagion and systemic risk. Our approach documents that the largest systemic risk component of the periphery comes from Italy, the smallest from Ireland.","PeriodicalId":360770,"journal":{"name":"ERN: Debt; Debt Management (Topic)","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122299651","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Determinants of External-Debt Crises. A Probit Model","authors":"M. Magomedova","doi":"10.2139/ssrn.3042887","DOIUrl":"https://doi.org/10.2139/ssrn.3042887","url":null,"abstract":"The issue of EDC became increasingly important in the field of development economics primarily because EDC has been occurring more frequent after the deregulation of global financial flows in the 1970s (Tiruneh 2004, Jones 2015) hitting mostly MICs and LICs. Assessing the probability of an EDC to occur is especially important since recovery from an EDC imposes additional costs on the affected economies in tangible and non tangible terms. The main findings of my research boil up to the following conclusions. First, an increase in the level of inflation, share of short term debt in ED, net barter TOT, total debt service to GNI ratio, and share of income held by the richest 10% and share of agriculture in GDP leads to an increase in the probability of an EDC to occur. Second, an increase of are total reserves to ED ratio and the total debt service to GNI ratio leads to a decrease of the probability of an EDC to occur. Therefore, holding FX reserves is a strong protective measure from an EDC. Third, the share of income held by the richest 10% of the population is an especially strong determinant of EDC for the LMICs; while in the LICs the effect of this factor is opposite, meaning that LICs with low level of income inequality have higher risk of a debt distress. The probit model helps to predict the probability of the EDC to occur in any given country using the values of the determinants. (The abbreviations are clarified in the text.)","PeriodicalId":360770,"journal":{"name":"ERN: Debt; Debt Management (Topic)","volume":"15 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-09-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123732661","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Liquidity and Shadow Banking","authors":"Zary Aftab, Simone Varotto","doi":"10.2139/ssrn.3043770","DOIUrl":"https://doi.org/10.2139/ssrn.3043770","url":null,"abstract":"Using a unique dataset of the detailed portfolio holdings of US money market funds, we study the behaviour of such funds in the context of the European sovereign debt crisis. These important players in the shadow banking sector were particularly vulnerable to liquidity shocks before the introduction of minimum liquidity requirements. We analyse the impact of these requirements and show that they have considerably increased the resilience of prime funds. We also see that prime funds increase their liquidity to counter expected investors’ redemptions in crisis periods. However, liquidity does not shelter risky funds from lower inflows.","PeriodicalId":360770,"journal":{"name":"ERN: Debt; Debt Management (Topic)","volume":"53 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-08-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127250021","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
António Dias da Silva, Audrey Givone, David Sondermann
{"title":"When Do Countries Implement Structural Reforms?","authors":"António Dias da Silva, Audrey Givone, David Sondermann","doi":"10.1093/OSO/9780198821878.003.0002","DOIUrl":"https://doi.org/10.1093/OSO/9780198821878.003.0002","url":null,"abstract":"This chapter’s objective is to investigate which factors—macroeconomic, policy-related, or institutional—foster the implementation of structural reforms. We therefore look at episodes of structural reforms over three decades across forty OECD and EU countries and link them to these factors. Our results suggest that structural reforms implementation is more likely during deep recessions and when unemployment rates are high. Moreover, the further it is distant from best practice, the more likely a country is to implement reforms. External pressures, such as being subject to a financial assistance programme, or being part of the European Single Market facilitated pro-competitive reforms. Low interest rates tend to promote rather than discourage structural reforms, while there seems no clear link between fiscal policy and reforms. Moreover, reforms in product markets tend to increase the likelihood of labour market reforms following suit. Many robustness checks have been carried out confirming our main results.","PeriodicalId":360770,"journal":{"name":"ERN: Debt; Debt Management (Topic)","volume":"56 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-06-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122748135","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Conditionality of Foreign Aid and Its Consequences","authors":"A. Petroia, Victoria Pacicovschi","doi":"10.2139/SSRN.2977946","DOIUrl":"https://doi.org/10.2139/SSRN.2977946","url":null,"abstract":"The role of foreign aid in the growth process of developing countries has been a topic of intense debate. Foreign aid is an important topic given its implications for poverty reduction in developing countries. \u0000Since the second World War, foreign aid has been one of the most prominent policy tools that high income countries use for assisting low income countries to increase economic growth, improve population well-being and facilitate institutional development. In a 1970 resolution, the United Nations General Assembly specified that rich countries should aim to give 0.7% of their GNP to poor countries in the form ODA. \u0000Given the enormous amount of resources put into foreign aid and the call from international policymakers to increase it further, it is unsurprising that aid has always been and remains a subject of controversy for academics and policymakers. \u0000The purpose of the research paper is to analyze the concept of conditionality of foreign aid, its objectives, forms and the effects of foreign aid on the economic growth of LDC. \u0000In the first chapter we analyze the concept of foreign aid and its definition from different points of view and sources. \u0000In the second chapter we specify the top donors countries of foreign aid and their contribution to LDC. \u0000In the third chapter, there will be presented the advantages and disadvantages of giving foreign aid and how foreign aid affects the LDC. \u0000In the last section we present our point of view and opinion regarding the benefits of foreign aid, and also about the minuses of offering foreign aid.","PeriodicalId":360770,"journal":{"name":"ERN: Debt; Debt Management (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-05-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134487343","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Velmurugan Palaniappan Shanmugam, S. A., B. Treemurutulu
{"title":"An Empirical Analysis of Efficiency in Asian Pacific Public Debt Market","authors":"Velmurugan Palaniappan Shanmugam, S. A., B. Treemurutulu","doi":"10.2139/ssrn.2977876","DOIUrl":"https://doi.org/10.2139/ssrn.2977876","url":null,"abstract":"This research aims to analyze the causal relationships in the yield of public debt issued by Asia-Pacific countries. We make use of a database of daily frequency of yields on 10-year government bonds issued by five Asia Pacific countries (India, Singapore, Korea, Hong Kong, and Australia), The daily yield data collected from 1st January 2003 to 31st December 2013. As a first step, we explore the co-integration between yields on bonds issued by different countries. Secondly, we study the pair-wise causal relationship between yields, in order to capture the possible time-varying causal relationship. Data related to all five countries are significantly stationary at order one or I(1). Moreover, the findings also show that for few groups of countries there found co-integration with one vector. This implies that 10-year government bond yield is co-integrated with one co-integrating vector. In short run, we find evidence of strong causal linkages between Asia Pacific yields.","PeriodicalId":360770,"journal":{"name":"ERN: Debt; Debt Management (Topic)","volume":"55 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-05-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126055772","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
R. Barro, Jesús Fernández-Villaverde, Oren Levintal, Andrew Mollerus
{"title":"Safe Assets","authors":"R. Barro, Jesús Fernández-Villaverde, Oren Levintal, Andrew Mollerus","doi":"10.2139/ssrn.2968481","DOIUrl":"https://doi.org/10.2139/ssrn.2968481","url":null,"abstract":"\u0000 This paper investigates the quantity of safe assets. First, we estimate that the average safe-asset ratio (ratio of safe to total assets) in 34 OECD countries was 37% in 2015. Further, we document that this ratio is relatively stable over time. Second, we build a heterogeneous-agent model with rare disasters and risk aversion coefficients that accounts for i) the average level of the safe-asset ratio; ii) the stability of this ratio over time; iii) the observed risk-free rate of around 1.0% per year; and iv) the empirical unlevered equity premium of about 4.2%. The model also replicates the observed highly concentrated distributions of wealth and equity. Finally, Ricardian equivalence holds in our model: issuing additional government bonds has no effect on rates of return and the net quantity of safe assets. Surprisingly, the crowding-out coefficient for private bonds with respect to public bonds is around -0.5, a value found in empirical studies.","PeriodicalId":360770,"journal":{"name":"ERN: Debt; Debt Management (Topic)","volume":"38 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2017-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129812233","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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