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How Information Quality of Macro Aggregates Affects Sovereign Risk: An Empirical Investigation

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  • Seung Jung Lee

Abstract

This paper looks at the relationship between data quality of macro aggregates and the repayment ratio for debt payments due in a given year after a country defaults. We find empirical evidence that good information of macro aggregates reduces sovereign risk by enhancing the repayment ratio conditional on default, while having an insignificant effect on the default probability. The estimation accounts for selection bias by using a cross‐country panel data of 69 developing countries for 1989–2002. Careful consideration is taken to establish information quality of macro aggregates as an exogenous institutional variable. Results are robust to controlling for various governance factors, income levels, and regional factors, etc. Linking information quality to creditors' bargaining power is more consistent with our findings than linking poor information quality to information asymmetry.

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  • Seung Jung Lee, 2009. "How Information Quality of Macro Aggregates Affects Sovereign Risk: An Empirical Investigation," Review of International Economics, Wiley Blackwell, vol. 17(3), pages 510-532, August.
    • Handle: RePEc:bla:reviec:v:17:y:2009:i:3:p:510-532
    DOI: 10.1111/j.1467-9396.2009.00814.x
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    1. Lina Maddah & Hassan Sherry & Hussein Zeaiter, 2024. "Economic and Political Determinants of Sovereign Default and IMF Credit Use: A Robustness Assessment Post 2010," Economies, MDPI, vol. 12(7), pages 1-36, July.
    2. Dionísio Dias Carneiro & Thomas Wu, 2010. "Sovereign Risk and Out‐of‐Equilibrium Exchange Rate Dynamics," Review of Development Economics, Wiley Blackwell, vol. 14(4), pages 699-711, November.
    3. Zeaiter, Hussein & El-Khalil, Raed, 2016. "Extreme bounds of sovereign defaults: Evidence from the MENA region," International Review of Economics & Finance, Elsevier, vol. 41(C), pages 391-410.
    4. Chakrabarti, Avik & Zeaiter, Hussein, 2014. "The determinants of sovereign default: A sensitivity analysis," International Review of Economics & Finance, Elsevier, vol. 33(C), pages 300-318.
    5. Tennant, David F. & Tracey, Marlon R. & King, Damien W., 2020. "Sovereign credit rating: Evidence of bias against poor countries," The North American Journal of Economics and Finance, Elsevier, vol. 51(C).
    6. Seung Jung Lee & Kelly E. Posenau & Viktors Stebunovs, 2017. "The Anatomy of Financial Vulnerabilities and Crises," International Finance Discussion Papers 1191, Board of Governors of the Federal Reserve System (U.S.).
    7. Zeaiter, Hussein Zeaiter, 2013. "Sovereign Debt Defaults: Evidence using Extreme bounds Analysis," Working Papers 32/2013, Universidade Portucalense, Centro de Investigação em Gestão e Economia (CIGE).
    8. Lee, Seung Jung & Posenau, Kelly E. & Stebunovs, Viktors, 2020. "The anatomy of financial vulnerabilities and banking crises," Journal of Banking & Finance, Elsevier, vol. 112(C).

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