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The Cost of Private Debt Over the Credit Cycle

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  • Eugen Tereanu
  • Johanna L. Francis
  • Dilek Aykut

Abstract

We identify global and regional fluctuations in international private debt flows to emerging and developing countries using data on cross border loans and international bond issuance over 1993 -2009. We estimate the effects of individual borrower characteristics as well as macroeconomic conditions on the cost of foreign borrowing and test whether these effects differ across phases of the lending cycle. We find that public and financial institutions benefit from lower spreads compared to private and nonfinancial firms and that lenders may differentiate the risk associated with the borrower’s industrial sector between good and bad times. The loan (bond) rating has an equally robust spread reduction effect across credit cycle phases. The results also suggest that international reserve holdings and investment ratios have a significant effect on reducing credit spreads for loans, while higher reserve holdings and longer maturities matter more for bond spreads.

Suggested Citation

  • Eugen Tereanu & Johanna L. Francis & Dilek Aykut, 2010. "The Cost of Private Debt Over the Credit Cycle," IMF Working Papers 2010/283, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2010/283
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    References listed on IDEAS

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    1. International Monetary Fund, 1996. "The Economic Content of Indicators of Developing Country Creditworthiness," IMF Working Papers 1996/009, International Monetary Fund.
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    Cited by:

    1. Keskinsoy, Bilal, 2017. "Taxi, Takeoff and Landing: Behavioural Patterns of Capital Flows to Emerging Markets," MPRA Paper 78129, University Library of Munich, Germany.
    2. Ayala, Diana & Nedeljkovic, Milan & Saborowski, Christian, 2017. "What slice of the pie? The corporate bond market boom in emerging economies," Journal of Financial Stability, Elsevier, vol. 30(C), pages 16-35.
    3. Mohapatra,Sanket & Nose,Manabu & Ratha,Dilip K., 2016. "Impacts of sovereign rating on sub-sovereign bond ratings in emerging and developing economies," Policy Research Working Paper Series 7618, The World Bank.

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    Keywords

    WP; loan; bond; borrower;
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