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Sovereign defaults by currency denomination

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  • Jeanneret, Alexandre
  • Souissi, Slim

Abstract

This paper explores the drivers of sovereign default in 100 countries over the period 1996–2012. We build a new data set of sovereign defaults and find that default events for local and foreign currency bonds are equally likely. However, governments default under different economic and financial conditions depending on the currency in which bonds are issued. The explained variation in default probability rises from 43% to 62% when we account for differences in currency denomination. We also provide evidence that global factors and market sentiment, which are known to drive sovereign spreads, do not help explain the probability of sovereign default. Hence, these factors appear to affect the price of sovereign credit risk, although not the risk itself.

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  • Jeanneret, Alexandre & Souissi, Slim, 2016. "Sovereign defaults by currency denomination," Journal of International Money and Finance, Elsevier, vol. 60(C), pages 197-222.
  • Handle: RePEc:eee:jimfin:v:60:y:2016:i:c:p:197-222
    DOI: 10.1016/j.jimonfin.2015.03.004
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    Cited by:

    1. repec:eee:jimfin:v:93:y:2019:i:c:p:313-334 is not listed on IDEAS
    2. Di Casola, Paola & Sichlimiris, Spyridon, 2017. "Domestic and External Sovereign Debt," Working Paper Series 345, Sveriges Riksbank (Central Bank of Sweden).
    3. Takefumi Yamazaki, 2018. "Financial friction sources in emerging economies: Structural estimation of sovereign default models," Discussion papers ron303, Policy Research Institute, Ministry of Finance Japan.
    4. Marlene Amstad & Frank Packer & Jimmy Shek, 2018. "Does sovereign risk in local and foreign currency differ?," BIS Working Papers 709, Bank for International Settlements.
    5. repec:eee:jbfina:v:93:y:2018:i:c:p:230-246 is not listed on IDEAS

    More about this item

    Keywords

    Sovereign default; Local currency debt; Foreign currency debt; International bonds;

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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