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Sovereign Risk: A Macro-Financial Perspective

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  • Das, Udaibir S.

    (Asian Development Bank Institute)

  • Oliva, Maria A.

    (Asian Development Bank Institute)

  • Tsuda, Takahiro

    (Asian Development Bank Institute)

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    Abstract

    We examine some of the macro-financial dimensions of sovereign risk and propose a conceptual framework that captures risks other than just the default risk. Morphed under a multi-dimensional notion of sovereign risk, we argue that the existing empirical methodologies to measure sovereign risk cover only partial aspects of sovereign risk and fail to capture its macro-financial dimensions. We highlight a menu of tools that could be used to tackle the broader notion of sovereign risk, and suggest that authorities should actively use them to manage the macro financial dimensions of sovereign risk and before those risks feed into the real economy.

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    File URL: http://www.adbi.org/files/2012.10.02.wp383.sovereign.risk.macrofinancial.perspective.pdf
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    Bibliographic Info

    Paper provided by Asian Development Bank Institute in its series ADBI Working Papers with number 383.

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    Length: 31 pages
    Date of creation: 02 Oct 2012
    Date of revision:
    Handle: RePEc:ris:adbiwp:0383

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    Keywords: sovereign risk; default risk; macro-financial dimensions;

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    1. Gelos, R. Gaston & Sahay, Ratna & Sandleris, Guido, 2011. "Sovereign borrowing by developing countries: What determines market access?," Journal of International Economics, Elsevier, vol. 83(2), pages 243-254, March.
    2. Joshua Aizenman & Michael M. Hutchison & Yothin Jinjarak, 2011. "What is the Risk of European Sovereign Debt Defaults? Fiscal Space, CDS Spreads and Market Pricing of Risk," NBER Working Papers 17407, National Bureau of Economic Research, Inc.
    3. Udaibir S. Das & Jay Surti & Faisal Ahmed & Michael G Papaioannou & Guilherme Pedras, 2010. "Managing Public Debt and its Financial Stability Implications," IMF Working Papers 10/280, International Monetary Fund.
    4. Merler, S. & Pisani-Ferry, J., 2012. "Hazardous tango: sovereign-bank interdependence and financial stability in the euro area," Financial Stability Review, Banque de France, issue 16, pages 201-210, April.
    5. Dale F. Gray & Robert C. Merton & Zvi Bodie, 2007. "New Framework for Measuring and Managing Macrofinancial Risk and Financial Stability," NBER Working Papers 13607, National Bureau of Economic Research, Inc.
    6. International Monetary Fund, 2011. "Government Debt Issuance in the Euro Area," IMF Working Papers 11/21, International Monetary Fund.
    7. Carmen M. Reinhart & Kenneth S. Rogoff, 2009. "This Time Is Different: Eight Centuries of Financial Folly," Economics Books, Princeton University Press, edition 1, volume 1, number 8973.
    8. Das, Udaibir S. & Papaioannou, Michael G. & Trebesch, Christoph, . "Sovereign Default Risk and Private Sector Access to Capital in Emerging Markets," Chapters in Economics, University of Munich, Department of Economics.
    9. Gabriela Dobrescu & Iva Petrova & Nazim Belhocine & Emanuele Baldacci, 2011. "Assessing Fiscal Stress," IMF Working Papers 11/100, International Monetary Fund.
    10. Roberto Rigobon & Marcio Garcia, 2004. "A Risk Management Approach to Emerging Market’s Sovereign Debt Sustainability with an application to Brazilian data," Econometric Society 2004 Latin American Meetings 24, Econometric Society.
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