Essays in debt sustainability and financial stability

Sovereign default, dynamic stochastic general equilibrium model, attachable assets, government financial asset, financial crises, government balance sheets, government debt, quantile regression, banking crises, currency crises.

Henao Arbelaez, Camila

关键词: Sovereign default, dynamic stochastic general equilibrium model, attachable assets, government financial asset, financial crises, government balance sheets, government debt, quantile regression, banking crises, currency crises.;   

Others  :  https://www.ideals.illinois.edu/bitstream/handle/2142/101564/HENAOARBELAEZ-DISSERTATION-2018.pdf?sequence=1&isAllowed=y

美国|英语

来源: The Illinois Digital Environment for Access to Learning and Scholarship

【 摘 要 】

In chapter one, I construct a dynamic stochastic general equilibrium model of optimal default, in which the government optimally holds net debt and attachable assets. The model is novel as it allows for the possibility of debt to be enforced. This is a vast improvement upon previous models, which find that the optimal level of assets the sovereign chooses in the long run is zero. Here, asset savings have other roles different than consumption smoothing. They impact repayment incentives and borrowing costs. Whenever debt is enforceable through a fraction of assets that can be confiscated should the government default, equilibrium attachable asset holdings can be different than zero.I find that attachable asset holdings and attachability, increase debt sustainability, and further provide access to funds. The main mechanism by which this occurs is the endogenous interest rate. It is found to be decreasing in the attachability parameter, and increasing in the probability of redemption. I calibrate $\alpha$ to match observed attachable asset levels. Results indicate a ninefold increase in attachability from the late 1990s to 2010 (from $10\%$ to $93\%$); these results then allow me to match the observed rising trend in attachable asset holdings since the late 1990s. In synthesis, this paper argues that larger attachability—which can be interpreted as relentless litigation, severe threats of confiscation, and less favorable rulings toward sovereigns—explains the rise in the observed percentage of debt attached and attachable asset holdings.In chapter two, we ask if government financial assets help improve public debt sustainability. We assemble a comprehensive dataset on government assets using multiple sources and covering 110 advanced and emerging market economies since the 1980s. We then use this rich database to estimate the impact of assets on two key dimensions of debt sustainability: borrowing costs and the probability of debt distress. Government assets significantly reduce sovereign spreads and the probability of debt crises in emerging economies, but not in advanced economies; this effect varies with asset characteristics, notably liquidity. Assets also help discriminate among countries across the distribution of sovereign spreads, thus signaling information about emerging economies’ creditworthiness.Chapter three systematically documents the impact on output dynamics of an additional unit of debt-to-tax revenue, conditional on the occurrence of financial shocks. I examine whether banking crises are systematically different from other financial catastrophes (currency crises), and, most importantly, whether pre-crises fiscal buffers are particularly important whenever banking crises materialize. Lastly, the paper investigates post-crisis output dynamics considering pre-crisis debt-to-tax revenue, and examine whether the post-crisis dynamics are systematically different for emerging and developing economics than for advanced economies. Using panel data for 155 countries for the period of 1975-2011, I estimate a univariate autoregressive model in growth rates, and construct impulse response functions to display the relationship between debt-to-tax-revenue conditional on a financial crisis and output dynamics. Using three approaches to account for the endogeneity of crises and fiscal burden, I find that an additional unit of debt-to-tax revenue prior to a banking crisis is associated with larger output losses than when the same situation occurs prior to a currency crisis. Emerging and developing economies experience deeper losses than advanced countries; this is due not only to banking and currency crises, but because of marginal increases in the pre-crisis debt-to-tax-revenue ratios.