This paper documents and analyzes crisis-related changes in government debt issuance practices in the 16 euro zone countries and Denmark. Using a newly constructed database on primary market debt issuance during 2007-09, we find evidence of a shift away from pre-crisis standards of best funding practices competitive auctions of debt instruments with a fixed coupon, long maturity and local currency denomination (DLTF). Exploiting the cross-country panel data dimension of the data, we conclude that the crisis and related changes in the macroeconomic environment and investor sentiment can account for a significant proportion of the deviation. The negative effect of the crisis on DLTF debt issuance was especially pronounced in high deficit and high debt euro area countries, and has forced governments to assume additional risk.
. Dedollarization Trend in the Currency Composition of Domestic Debt
F. Indexation to Inflation as an Alternative to Foreign Currency Indexation
G. Floating Rate Debt Share in Domestic Debt
IV. Empirical Methodology and Results
A. Panel Data Analysis
B. Determinants of Domestic Debt Share in Total Debt
C. Determinants of Tradability of Domestic Debt
D. Determinants of DLTFDebt in Domestic Debt
E. Determinants of Short-Term Debt Share Debt in Domestic Debt
F. Determinants of Foreign-Currency Denominated/Indexed Debt Share
also reveal a lot of heterogeneity across regions. Figure 7 reports the same information as in Figure 6 for Latin America, Asia, and (for the sake of comparison) our small group of advanced countries. The structure of domestic debt in Asia is very similar to that in advanced countries, with an overwhelming share of domestic-currency debt of medium- to long-term maturity and with a fixed interest rate (hereafter, DLTFdebt). The situation is different in Latin America. There domestic-currency, fixed-interest rate debt is less prevalent (although far from absent
This paper presents a new database on government debt in 19 emerging market countries since 1980. The data set focuses on the structure of debt in terms of jurisdiction of insurance, maturity, currency composition and indexation. The paper presents stylized facts on debt structures and preliminary evidence on their determinants. We observe substantial crosscountry variation in the structure of domestic debt and find it to be associated with countries' record of monetary stability.
Debt crises that have shaken Latin America, Asia, and Russia have brought an increasing attention to the structure of debt in emerging market countries. Using the newly released Jeanne-Guscina EM Government Debt Database 2006 this paper empirically explores the role of macroeconomic, political, and institutional factors in determining the structure of government debt. Results show that unstable macroeconomic environment, poor quality institutions, and uncertain political climate hinder the development of domestic debt market. Moreover, such instability shifts the debt structure away from long-term local currency fixed rate debt towards short-term debt or to debt indexed to foreign currency, short-term interest rates or inflation. Original sin seems to be on the way out, as more and more countries are issuing local currency debt at longer maturities-which can be explained by successful macroeconomic stabilization policies and lessons learned from the debt crises.
credibility, the share of domestic debt in total debt should increase. There will be more inertia in the reemergence of DLTFdebt, and it will be preceded by inflation-indexed debt or by nominal debt with short maturities. Healthy macroeconomic environment, political stability, and faith in the institutions would not only propagate the development of domestic debt market, they would result in the increased share of tradable securitized debt in both domestic and international debt. While this paper is empirical in nature, it tests priors that have been suggested by earlier
The main results from the econometric analysis for the sample as a whole are broadly in line with theoretical priors. Notably, the crisis shifted the composition of issuance away from domestic currency, fixed interest rate instruments with long maturity (DLTFdebt) toward shorter maturities, a foreign currency denomination, or a floating rate. But, controlling for the crisis effects, lower inflation and higher growth supported the issuance of instruments with long maturity, domestic currency denomination, and a fixed coupon. Stronger investor sentiment
sovereigns’ increasing ability to borrow domestically, the domestic debt instrument mix in many countries has increasingly shifted toward domestic long-term local currency-denominated fixed-rate debt (DLTF). 4 Yet, such debt remains prohibitively costly in a subset of EM and LIC countries.
2. Countries undertook these efforts because DLTFdebt is considered among the safest forms of debt from the standpoint of the debtor. Since it is the creditor who bears the cost of currency depreciation or inflation, DLTFdebt protects the sovereign against certain types of shocks