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Lost and Found: Market Access and Public Debt Dynamics

Author

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  • Bassanetti , Antonio

    () (International Monetary Fund, Bank of Italy)

  • Cottarelli , Carlo

    () (International Monetary Fund)

  • Presbitero, Andrea

    () (International Monetary Fund, Universitá Politecnica delle Marche)

Abstract

The empirical literature on sovereign debt crises identifies the level of public debt (measured as a share of GDP) as a key variable to predict debt defaults and to determine sovereign market access. This evidence has led to the widespread use of (country-specific) debt thresholds to assess debt sustainability. We argue that the level of the debt-to-GDP ratio, whose use is justified on a theoretical and empirical ground, should not be the only fiscal metric to assess the complex relationship between public debt and debt defaults/market access. In particular, we show that, in a large panel of emerging markets, the dynamics of the debt ratio plays a critical role for market access. In particular, given a certain level of debt, a steadily declining debt ratio is associated with a lower probability of debt distress/market loss and with a higher likelihood of market re-access once access had been lost.

Suggested Citation

  • Bassanetti , Antonio & Cottarelli , Carlo & Presbitero, Andrea, 2016. "Lost and Found: Market Access and Public Debt Dynamics," SEP Working Papers 2016/5, LUISS School of European Political Economy.
  • Handle: RePEc:ris:sepewp:2016_005
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    References listed on IDEAS

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    Cited by:

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    3. Rudolf Alvise Lennkh & Edmund Moshammer & Vilém Valenta, 2017. "A Comprehensive Scorecard for Assessing Sovereign Vulnerabilities," Working Papers 23, European Stability Mechanism.
    4. Giancarlo Corsetti & Aitor Erce & Timothy Uy, 0. "Official sector lending during the euro area crisis," The Review of International Organizations, Springer, vol. 0, pages 1-39.
    5. Cui, Wei, 2017. "Macroeconomic effects of delayed capital liquidation," LSE Research Online Documents on Economics 86156, London School of Economics and Political Science, LSE Library.
    6. Bernardini, Marco & Forni, Lorenzo, 2020. "Private and public debt interlinkages in bad times," Journal of International Money and Finance, Elsevier, vol. 109(C).
    7. Carmine Gabriele & Aitor Erce & Marialena Athanasopoulou & Juan Rojas, 2017. "Debt Stocks Meet Gross Financing Needs: A Flow Perspective into Sustainability," Working Papers 24, European Stability Mechanism.
    8. Aitor Erce & Xu Jiang & Diana Zigraiova, 2020. "Quantifying Risks to Sovereign Market Access: Methods and Challenges," Globalization Institute Working Papers 377, Federal Reserve Bank of Dallas.

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    More about this item

    Keywords

    Debt Sustainability; Fiscal Crises; Default; Market Access; International Capital Markets;

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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