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How does country-specific macro uncertainty affect international debt securities denominated in local currency?

Author

Listed:
  • Qi Zhang

    (Dongbei University of Finance and Economics)

  • Xue Sun

    (Dongbei University of Finance and Economics)

  • Weining Wang

    (Dongbei University of Finance and Economics)

Abstract

This study investigates the impact of country-specific macro uncertainty on the currency denomination of international debt securities. By analyzing quarterly data on local currency debt securities issued in international market for 36 countries from 2010Q1 to 2021Q4, we find that economies with higher macro uncertainty are associated with fewer local-currency debt securities issued internationally. However, this association is weaker for global-currency economies and OECD economies. Besides, heightened domestic macro uncertainty can lead to exacerbated exchange rate volatility, higher risk premia, pessimistic sentiment among foreign investors as well as hindered economic growth, thereby reducing local currency debt securities. Meanwhile, the implementation of stricter macro-prudential regulations will help alleviate the adverse impact of macro uncertainty on local-currency debt securities issued internationally. Our findings provide deep insights into how uncertainty shapes local currency debt securities in the international market and the pivotal role of macro-prudential policies.

Suggested Citation

  • Qi Zhang & Xue Sun & Weining Wang, 2025. "How does country-specific macro uncertainty affect international debt securities denominated in local currency?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 161(4), pages 1255-1278, November.
    • Handle: RePEc:spr:weltar:v:161:y:2025:i:4:d:10.1007_s10290-025-00588-2
    DOI: 10.1007/s10290-025-00588-2
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    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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