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Macroeconomic Volatility, Debt Dynamics, and Sovereign Interest Rate Spreads

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  • Hans Genberg

    (Hong Kong Monetary Authority)

  • Astrit Sulstarova

    (Graduate Institute for International Studies)

Abstract

While the relationship between volatility and risk is central to much of the financial literature it has not been incorporated systematically into assessment of sovereign debt sustainability. This paper attempts to fill this gap by studying how the probability distribution of sovereign debt to GDP ratios depends on the stochastic properties of underlying macroeconomic variables. Using the right hand-tail of the distribution as a measure of the risk we are able to show how the volatility of the underlying variables as well as potential interactions between them influence country risk.

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Bibliographic Info

Paper provided by Hong Kong Institute for Monetary Research in its series Working Papers with number 182005.

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Length: 25 pages
Date of creation: Oct 2005
Date of revision:
Handle: RePEc:hkm:wpaper:182005

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Keywords: Macroeconomic volatility; debt dynamics; sovereign spreads;

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Cited by:
  1. Mizen, Paul & Tsoukas, Serafeim, 2012. "The response of the external finance premium in Asian corporate bond markets to financial characteristics, financial constraints and two financial crises," Journal of Banking & Finance, Elsevier, vol. 36(11), pages 3048-3059.
  2. Panagiotis Petrakis & Emmanuel Papadakis & Nikoleta Daniilopoulou, 2012. "Public Statements on Sovereign Yield Spreads:The Greek Case," Cyprus Economic Policy Review, University of Cyprus, Economics Research Centre, vol. 6(2), pages 5-16, December.
  3. Dale F. Gray & Elena Loukoianova & Samuel W. Malone & Cheng Hoon Lim, 2008. "A Risk-Based Debt Sustainability Framework," IMF Working Papers 08/40, International Monetary Fund.

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