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Tracking Global Demand for Advanced Economy Sovereign Debt

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  • Serkan Arslanalp
  • Takahiro Tsuda
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    Abstract

    Recent events have shown that sovereigns, just like banks, can be subject to runs, highlighting the importance of the investor base for their liabilities. This paper proposes a methodology for compiling internationally comparable estimates of investor holdings of sovereign debt. Based on this methodology, it introduces a dataset for 24 major advanced economies that can be used to track US$42 trillion of sovereign debt holdings on a quarterly basis over 2004-11. While recent outflows from euro periphery countries have received wide attention, most sovereign borrowers have continued to increase reliance on foreign investors. This may have helped reduce borrowing costs, but it can imply higher refinancing risks going forward. Meanwhile, advanced economy banks’ exposure to their own government debt has begun to increase across the board after the global financial crisis, strengthening sovereign-bank linkages. In light of these risks, the paper proposes a framework—sovereign funding shock scenarios (FSS)—to conduct forward-looking analysis to assess sovereigns’ vulnerability to sudden investor outflows, which can be used along with standard debt sustainability analyses (DSA). It also introduces two risk indices—investor base risk index (IRI) and foreign investor position index (FIPI)—to assess sovereigns’ vulnerability to shifts in investor behavior.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 12/284.

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    Length: 62
    Date of creation: 03 Dec 2012
    Date of revision:
    Handle: RePEc:imf:imfwpa:12/284

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    Related research

    Keywords: Sovereign debt; Developed countries; Investment; Demand; Public debt; Debt management; Debt refinancing; Cross country analysis; government debt; central banks; external debt; debt statistics; external debt statistics; currency composition; debt outstanding; reserve countries; debt stock; government loans; domestic investors; government deficit; debt sustainability; external loans; reserve bank; public debt management; official creditors; debt crisis; debt market; debt portfolios; reserve currency; debt managers; total debt stock; debt sustainability analyses; sovereign bond; reserve assets; sovereign bonds; debt data; foreign debt; sovereign borrowers; debt holders; debt management offices; national debt; external debt data; multilateral loans; short-term debt; debt sustainability issues; national debt management;

    References

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    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.:
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    1. Guillermo Calvo & Alejandro Izquierdo & Luis-Fernando Mejía, 2004. "On the empirics of Sudden Stops: the relevance of balance-sheet effects," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco, issue Jun.
    2. Jochen R. Andritzky, 2012. "Government Bonds and their Investors," IMF Working Papers 12/158, International Monetary Fund.
    3. Silvia Merler & Jean Pisani-Ferry, 2012. "Who's afraid of sovereign bonds?," Policy Contributions, Bruegel 695, Bruegel.
    4. Frankel, Jeffrey A, 1985. "Portfolio Crowding-out, Empirically Estimated," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 100(5), pages 1041-65, Supp..
    5. Philip Turner, 2012. "Weathering financial crisis: domestic bond markets in EMEs," BIS Papers chapters, Bank for International Settlements, in: Bank for International Settlements (ed.), Weathering financial crises: bond markets in Asia and the Pacific, volume 63, pages 15-34 Bank for International Settlements.
    6. Silvia Merler & Jean Pisani-Ferry, 2012. "Sudden Stops in the Euro Area," Review of Economics and Institutions, Università di Perugia, Università di Perugia, vol. 3(3).
    7. Merler, S. & Pisani-Ferry, J., 2012. "Hazardous tango: sovereign-bank interdependence and financial stability in the euro area," Financial Stability Review, Banque de France, Banque de France, issue 16, pages 201-210, April.
    8. Gustavo Adler, 2012. "Intertwined Sovereign and Bank Solvencies in a Model of Self-Fulfilling Crisis," IMF Working Papers 12/178, International Monetary Fund.
    9. Daniel, L., 2008. "Foreign investors’ participation in emerging market economies’ domestic bond markets," Quarterly selection of articles - Bulletin de la Banque de France, Banque de France, Banque de France, issue 12, pages 61-77, Summer.
    10. Christoph Trebesch & Michael G Papaioannou & Udaibir S. Das, 2012. "Sovereign Debt Restructurings 1950-2010," IMF Working Papers 12/203, International Monetary Fund.
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    Cited by:
    1. Gianluca Cafiso, 2013. "Public-Debt Financing in the case of External Debt," Working Papers 2013-37, CEPII research center.
    2. Fernando Broner & Aitor Erce & Alberto Martin & Jaume Ventura, 2013. "Sovereign debt markets in turbulent times: Creditor discrimination and crowding-out effects," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 1372, Department of Economics and Business, Universitat Pompeu Fabra, revised Nov 2013.
    3. Arai, Real & Ueda, Junji, 2013. "A numerical evaluation of the sustainable size of the primary deficit in Japan," Journal of the Japanese and International Economies, Elsevier, vol. 30(C), pages 59-75.
    4. Fabian Lindner, 2013. "Banken treiben Eurokrise," IMK Report, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute 82-2013, IMK at the Hans Boeckler Foundation, Macroeconomic Policy Institute.
    5. Camille Cornand & Pauline Gandré & Céline Gimet, 2014. "Increase in Home Bias and the Eurozone Sovereign Debt Crisis," Working Papers, HAL halshs-01015475, HAL.
    6. Camille Cornand & Pauline Gandré & Céline Gimet, 2014. "Increase in Home Bias and the Eurozone Sovereign Debt Crisis," Working Papers, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure 1419, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure.

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