Choosing The Currency Structure Of Foreign‐Currency Debt: A Review Of Policy Approaches
Starting from the constraints and incentives that cause countries to issue debt in foreign currency, this paper provides an overview of policy approaches for choosing the optimal currency structure of sovereign foreign-currency debt. The objective of sovereign debt managers generally includes both risk and cost minimization, while constraints to foreign-currency debt allocation originate in the parameters of the domestic macroeconomy, the shocks it faces, and the initial conditions. Overall, the main parameters that drive the solutions for optimal currency allocation of foreign-currency debt are the covariances of macrovariables with exchange rates and the variances of different exchange rates. Both the covariances and the exchange rate volatility can be deceptive when a fixed exchange rate regime is maintained, however. To adequately capture the expected covariances in the context of managed exchange rate regimes, we suggest that sovereign debt managers work with equilibrium instead of actual exchange rates. For the same reason and because the estimates of relative exchange rate variances should be forward looking, we suggest using synchronization indicators in the policy analysis to better capture the underlying drivers of exchange rate volatility across currencies.
(This abstract was borrowed from another version of this item.)
To our knowledge, this item is not available for
download. To find whether it is available, there are three
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Volume (Year): 24 (2012)
Issue (Month): 2 (03)
|Contact details of provider:|| Web page: http://www3.interscience.wiley.com/journal/5102/home|
References listed on IDEAS
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.:
- Hausmann, Ricardo & Panizza, Ugo, 2003. "On the determinants of Original Sin: an empirical investigation," Journal of International Money and Finance, Elsevier, vol. 22(7), pages 957-990, December.
- Engel, Charles & West, Kenneth D., 2003.
"Exchange rates and fundamentals,"
Working Paper Series
0248, European Central Bank.
- Charles Engel & Kenneth D. West, 2003. "Exchange rates and fundamentals," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
- Charles Engel & Kenneth D. West, 2005. "Exchange Rates and Fundamentals," Journal of Political Economy, University of Chicago Press, vol. 113(3), pages 485-517, June.
- Márcio Gomes Pinto Garcia & Roberto Rigobon, 2004.
"A Risk Management Approach to Emerging Market’s Sovereign Debt Sustainability with an Application to Brazilian Data,"
Textos para discussão
484, Department of Economics PUC-Rio (Brazil).
- Marcio Garcia & Roberto Rigobon, 2004. "A Risk Management Approach to Emerging Market's Sovereign Debt Sustainability with an Application to Brazilian Data," NBER Working Papers 10336, National Bureau of Economic Research, Inc.
- Alessandro Missale & Elisabetta Falcetti, .
"Public Debt Indexation and Denomination with and Indipendent Central Bank,"
169, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Falcetti, Elisabetta & Missale, Alessandro, 2002. "Public debt indexation and denomination with an independent central bank," European Economic Review, Elsevier, vol. 46(10), pages 1825-1850, December.
- World Bank, 2007. "Managing Public Debt : From Diagnostics to Reform Implementation," World Bank Publications, The World Bank, number 6658, June.
- Ilan Goldfajn, 1998.
"Public Debt Indexation and Denomination: The Case of Brazil,"
Working Papers Central Bank of Chile
27, Central Bank of Chile.
- Goldfajn, Ilan, 2000. "Public Debt Indexation and Denomination: The Case of Brazil," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 5(1), pages 43-56, February.
- Ilan Goldfajn, 1998. "Public Debt Indexation and Denomination; The Case of Brazil," IMF Working Papers 98/18, International Monetary Fund.
- Alan S. Blinder, 1982. "Issues in the Coordination of Monetary and Fiscal Policy," NBER Working Papers 0982, National Bureau of Economic Research, Inc.
- Henning Bohn, .
"A Positive Theory of Foreign Currency Debt,"
Rodney L. White Center for Financial Research Working Papers
19-88, Wharton School Rodney L. White Center for Financial Research.
- Tim Bollerslev, 1986.
"Generalized autoregressive conditional heteroskedasticity,"
EERI Research Paper Series
EERI RP 1986/01, Economics and Econometrics Research Institute (EERI), Brussels.
- Bollerslev, Tim, 1986. "Generalized autoregressive conditional heteroskedasticity," Journal of Econometrics, Elsevier, vol. 31(3), pages 307-327, April.
- Habib, Maurizio Michael & Joy, Mark, 2008.
"Foreign-currency bonds: currency choice and the role of uncovered and covered interest parity,"
Working Paper Series
0947, European Central Bank.
- Maurizio Michael Habib & Mark Joy, 2010. "Foreign-currency bonds: currency choice and the role of uncovered and covered interest parity," Applied Financial Economics, Taylor & Francis Journals, vol. 20(8), pages 601-626.
- Bohn, Henning, 1990. "Tax Smoothing with Financial Instruments," American Economic Review, American Economic Association, vol. 80(5), pages 1217-30, December.
- Devereux, Michael B. & Lane, Philip R., 2003.
"Understanding bilateral exchange rate volatility,"
Journal of International Economics,
Elsevier, vol. 60(1), pages 109-132, May.
- Michael B. Devereux & Philip R. Lane, 2002. "Understanding Bilateral Exchange Rate Volatility," Trinity Economics Papers 200211, Trinity College Dublin, Department of Economics.
- Devereux, M.B. & Lane, P.R., 2002. "Understanding Bilateral Exchange Rate Volatility," CEG Working Papers 20025, Trinity College Dublin, Department of Economics.
- Devereux, Michael B & Lane, Philip R., 2002. "Understanding Bilateral Exchange Rate Volatility," CEPR Discussion Papers 3518, C.E.P.R. Discussion Papers.
- Broner, Fernando A. & Lorenzoni, Guido & Schmukler, Sergio L., 2004.
"Why do emerging economies borrow short term?,"
Policy Research Working Paper Series
3389, The World Bank.
- Fernando Broner & Guido Lorenzoni & Sergio L. Schmukler, . "Why Do Emerging Economies Borrow Short Term?," Working Papers 308, Barcelona Graduate School of Economics.
- Fernando A. Broner & Guido Lorenzoni & Sergio L. Schmukler, 2007. "Why Do Emerging Economies Borrow Short Term?," NBER Working Papers 13076, National Bureau of Economic Research, Inc.
- Fernando Broner & Guido Lorenzoni & Sergio L. Schmukler, 2003. "Why do emerging economies borrow short term?," Economics Working Papers 838, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 2011.
- Broner, Fernando A & Lorenzoni, Guido & Schmukler, Sergio, 2007. "Why Do Emerging Economies Borrow Short Term?," CEPR Discussion Papers 6249, C.E.P.R. Discussion Papers.
- Fernando Broner & Guido Lorenzoni & Sergio Schmuckler, 2006. "Why Do Emerging Economies Borrow Short Term?," 2006 Meeting Papers 841, Society for Economic Dynamics.
- Claessens, Stijn, 2005. "Taking stock of risk management techniques for sovereigns," Policy Research Working Paper Series 3570, The World Bank.
- Burger, John D. & Warnock, Francis E., 2007.
"Foreign participation in local currency bond markets,"
Review of Financial Economics,
Elsevier, vol. 16(3), pages 291-304.
- John D. Burger & Francis E. Warnock, 2004. "Foreign participation in local-currency bond markets," International Finance Discussion Papers 794, Board of Governors of the Federal Reserve System (U.S.).
- John D. Burger & Francis E. Warnock, 2006. "Foreign Participation in Local Currency Bond Markets," NBER Working Papers 12548, National Bureau of Economic Research, Inc.
- João A. C. Santos & Kostas Tsatsaronis, 2003. "The cost of barriers to entry: evidence from the market for corporate euro bond underwriting," BIS Working Papers 134, Bank for International Settlements.
- Bayoumi, Tamim & Eichengreen, Barry, 1998.
"Exchange rate volatility and intervention: implications of the theory of optimum currency areas,"
Journal of International Economics,
Elsevier, vol. 45(2), pages 191-209, August.
- Bayoumi, Tamim & Eichengreen, Barry, 1998. "Exchange Rate Volatility and Intervention: Implications of the Theory of Optimum Currency Areas," CEPR Discussion Papers 1982, C.E.P.R. Discussion Papers.
- Meese, Richard A. & Rogoff, Kenneth, 1983. "Empirical exchange rate models of the seventies : Do they fit out of sample?," Journal of International Economics, Elsevier, vol. 14(1-2), pages 3-24, February.
- Missale, Alessandro, 1999. "Public Debt Management," OUP Catalogue, Oxford University Press, number 9780198290858, December.
- Alessandro Missale & Francesco Giavazzi, 2003.
"Public Debt Management in Brazil,"
Development Working Papers
178, Centro Studi Luca d'Agliano, University of Milano.
- Rebecca L Driver & Peter F Westaway, 2005. "Concepts of equilibrium exchange rates," Bank of England working papers 248, Bank of England.
- Martin Melecky, 2010. "Currency Allocation of Public External Debt and Synchronization Indicators of Exchange Rate Volatility," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 52(1), pages 104-129, March.
- Thomas J. Sargent & Neil Wallace, 1981. "Some unpleasant monetarist arithmetic," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Fall.
- Philip Turner, 2002. "Bond markets in emerging economies: an overview of policy issues," BIS Papers chapters, in: Bank for International Settlements (ed.), The development of bond markets in emerging economies, volume 11, pages 1-12 Bank for International Settlements.
- Michael T. Gapen & Dale F. Gray & Cheng Hoon Lim & Yingbin Xiao, 2005. "Measuring and Analyzing Sovereign Risk with Contingent Claims," IMF Working Papers 05/155, International Monetary Fund.
- Barry Eichengreen & Ricardo Hausmann & Ugo Panizza, 2003. "Currency Mismatches, Debt Intolerance and Original Sin: Why They Are Not the Same and Why it Matters," NBER Working Papers 10036, National Bureau of Economic Research, Inc.
- MacDonald, Ronald, 2000. "Concepts to Calculate Equilibrium Exchange Rates: An Overview," Discussion Paper Series 1: Economic Studies 2000,03, Deutsche Bundesbank, Research Centre.
- Emanuele Bacchiocchi & Alessandro Missale, 2005.
"Managing Debt Stability,"
CESifo Working Paper Series
1388, CESifo Group Munich.
- Hull, John C & White, Alan D, 1987. " The Pricing of Options on Assets with Stochastic Volatilities," Journal of Finance, American Finance Association, vol. 42(2), pages 281-300, June.
- Stijn Claessens & Daniela Klingebiel & Sergio L. Schmukler, 2007. "Government Bonds in Domestic and Foreign Currency: the Role of Institutional and Macroeconomic Factors," Review of International Economics, Wiley Blackwell, vol. 15(2), pages 370-413, 05.
- Melecky, Martin, 2009. "The Effect of Institutions, Geography, Development Assistance and Debt Crises on Public-Debt Management," MPRA Paper 16332, University Library of Munich, Germany.
- David Jamieson Bolder, 2003. "A Stochastic Simulation Framework for the Government of Canada's Debt Strategy," Staff Working Papers 03-10, Bank of Canada.
- Ricardo Caballero & Kevin Cowan, 2006. "Financial Integration Without the Volatility," Working Papers Central Bank of Chile 387, Central Bank of Chile.
When requesting a correction, please mention this item's handle: RePEc:wly:jintdv:v:24:y:2012:i:2:p:133-151. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)or (Christopher F. Baum)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.