Country Insurance Using Financial Instruments
AbstractThe availability of financial instruments related to indices that track global financial conditions and risk appetite can potentially offer countries alternative options to insure against external shocks. This paper shows that while these instruments can explain much of the in-sample variation in borrowing spreads, this fails to materialize in hedging strategies that work well out-of-sample during tranquil times. However, positions on instruments such as those tracking the US High Yield Spread, the VIX, and especially other emerging market CDS spreads can substantially offset adverse movements in own spreads during times of systemic crises. Moreover, high risk countries seem to gain more, as their underlying weaknesses makes them more vulnerable to external shocks. Overall, the limited value in tranquil times, coupled with political economy arguments and innovation costs could justify the limited interest for this type of hedging in practice
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by International Monetary Fund in its series IMF Working Papers with number 11/169.
Date of creation: 01 Jul 2011
Date of revision:
Contact details of provider:
Postal: International Monetary Fund, Washington, DC USA
Phone: (202) 623-7000
Fax: (202) 623-4661
Web page: http://www.imf.org/external/pubind.htm
More information through EDIRC
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-08-22 (All new papers)
- NEP-IAS-2011-08-22 (Insurance Economics)
- NEP-RMG-2011-08-22 (Risk Management)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Ricardo J. Caballero & Stavros Panageas, 2003.
"Hedging Sudden Stops and Precautionary Contractions,"
NBER Working Papers
9778, National Bureau of Economic Research, Inc.
- Caballero, Ricardo J. & Panageas, Stavros, 2008. "Hedging sudden stops and precautionary contractions," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 28-57, February.
- Martín González-Rozada & EduardoLevy Yeyati, 2008.
"Global Factors and Emerging Market Spreads,"
Royal Economic Society, vol. 118(533), pages 1917-1936, November.
- Martín González Rozada & Eduardo Levy Yeyati, 2006. "Global Factors and Emerging Market Spreads," IDB Publications 6703, Inter-American Development Bank.
- Eduardo Levy Yeyati & Martín González Rozada, 2005. "Global Factors and Emerging Market Spreads," Business School Working Papers globalfactorsspreads, Universidad Torcuato Di Tella.
- Martín González Rozada & Eduardo Levy Yeyati, 2006. "Global Factors and Emerging Market Spreads," Research Department Publications 4445, Inter-American Development Bank, Research Department.
- Paolo Mauro & TÃ¶rbjÃ¶rn I. Becker & Jonathan David Ostry & Romain Ranciere & Olivier Jeanne, 2007. "Country Insurance," IMF Occasional Papers 254, International Monetary Fund.
- Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1993.
"“Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors,"
7125, University Library of Munich, Germany.
- Guillermo A. Calvo & Leonardo Leiderman & Carmen M. Reinhart, 1993. "Capital Inflows and Real Exchange Rate Appreciation in Latin America: The Role of External Factors," IMF Staff Papers, Palgrave Macmillan, vol. 40(1), pages 108-151, March.
- Fatih Ozatay & Erdal Ozmen & Gulbin Sahinbeyoglu, 2008.
"Emerging Market Sovereign Spreads, Global Financial Conditions and US Macroeconomic News,"
400, Economic Research Forum, revised May 2008.
- Özatay, Fatih & Özmen, Erdal & Sahinbeyoglu, Gülbin, 2009. "Emerging market sovereign spreads, global financial conditions and U.S. macroeconomic news," Economic Modelling, Elsevier, vol. 26(2), pages 526-531, March.
- Fatih Ozatay & Erdal Ozmen & Gülbin Sahinbeyoglu, 2007. "Emerging Market Sovereign Spreads, Global Financial Conditions and U.S. Macroeconomic News," ERC Working Papers 0707, ERC - Economic Research Center, Middle East Technical University, revised Dec 2007.
- Lien, Donald & Tse, Yiu Kuen, 2001. "Hedging downside risk: futures vs. options," International Review of Economics & Finance, Elsevier, vol. 10(2), pages 159-169.
- Dailami, Mansoor & Masson, Paul R. & Padou, Jean Jose, 2008.
"Global monetary conditions versus country-specific factors in the determination of emerging market debt spreads,"
Journal of International Money and Finance,
Elsevier, vol. 27(8), pages 1325-1336, December.
- Dailami, Mansoor & Masson, Paul R. & Padou, Jean Jose, 2005. "Global monetary conditions versus country-specific factors in the determination of emerging market debt spreads," Policy Research Working Paper Series 3626, The World Bank.
- Mansoor Dailami & Paul Masson & Jean Jose Padou, 2005. "Global Monetary Conditions versus Country-Specific Factors in the Determination of Emerging Market Debt Spreads," International Finance 0506003, EconWPA.
- Comelli, Fabio, 2012. "Emerging market sovereign bond spreads: Estimation and back-testing," Emerging Markets Review, Elsevier, vol. 13(4), pages 598-625.
- Fabio Comelli, 2012. "Emerging Market Sovereign Bond Spreads," IMF Working Papers 12/212, International Monetary Fund.
- Reda Cherif & Fuad Hasanov, 2012. "The Volatility Trap," IMF Working Papers 12/134, International Monetary Fund.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jim Beardow) or (Hassan Zaidi).
If references are entirely missing, you can add them using this form.