This paper uses novel news ticker data to evaluate the effect of sovereign risk on economic and financial outcomes. The use of intraday news enables me to derive policy events and respective timestamps that potentially alter investors’ beliefs about a sovereign’s willingness to service its...

This study investigates the tail dependence structures of sovereign credit default swaps (CDSs) and three global risk factors in BRICS countries using a copula approach, which is popular for capturing the “true” tail dependence based on the “distribution-adjusted” joint marginals. The...

How climate aspects affect sovereign bonds is still a new field of research. I differentiate between transition, physical, and innovation aspects of climate risks and climate performance and estimate the pricing-in of these climate aspects in sovereign bond yields for a sample of 29 countries,...

The purpose of this report is to raise awareness and initiate a discussion on the need for sovereign sustainability reporting. The proposed sovereign climate and nature reporting framework would assist sovereigns looking to attract investment by enabling them to produce comprehensive, regular,...

The increasing role of the financial sector in the move toward a more sustainable economic model continues apace. The Coronavirus (COVID-19) shock shone a light on the need for all society to correct course, and the financial sector is responding. The pace of environmental, social, and...

We investigate how internal distribution motives can interfere with the economic objectives of capital controls. In order to do this, we provide a model showing that elite capture can affect optimal debt repatriations and the management of official reserves under capital controls. Relying on...

China’s lending boom to developing countries is morphing into defaults and debt distress. Given the secrecy surrounding China’s loans, also the associated defaults remain “hidden”, as missed payments and restructuring details are not disclosed. We construct an encompassing dataset of...

This paper surveys recent economic and legal literature on sovereign debt in light of the COVID-19 shock. Most of the core theoretical contributions we review across the two disciplines hinge on immunity, and the sovereign borrower's consequent inability to commit to repay foreign creditors, as...

We develop a sovereign default risk index using natural language processing techniques and 10 million news articles covering over 100 countries. The index is a highfrequency measure of countries' default risk, particularly for those lacking marketbased measures: it correlates with sovereign CDS...

This paper proposes a quantitative theory of the interaction between private and public debt in an open economy. Excessive private debt increases the frequency of financial crises. During such crises the government provides fiscal bailouts financed with risky public debt. This response may cause...

Public debt is a very weak predictor of a country's credit rating if a country's other features are not taken into account. However, everything else equal, more public debt is associated with worse ratings. This paper explores the relationship between debt and sovereign creditworthiness by...

For three countries of similar economic characteristics, I ratify previous studies of the impact of fundamental macroeconomic and foreign exchange variables influencing country risk, as captured by the Emerging Market Bond Index (EMBI). I contribute to existing research, first by calculating a...

Liquidity is important for the stability of financial markets and the growth of national economies. However, the liquidity of financial markets may be influenced by country risk shocks through informational asymmetry, funding constraints, and portfolio rebalancing activities. Therefore, the...

The purpose of this report is to raise awareness and initiate a discussion on the need for sovereign sustainability reporting. The proposed sovereign climate and nature reporting framework would assist sovereigns looking to attract investment by enabling them to produce comprehensive, regular,...

The increasing role of the financial sector in the move toward a more sustainable economic model continues apace. The Coronavirus (COVID-19) shock shone a light on the need for all society to correct course, and the financial sector is responding. The pace of environmental, social, and...

Between 1986 and 2003 the Argentine risk premium was able to explain, almost alone, the Argentine business cycle. As time went by, the premium lost gradually its explanatory power till losing it all between 2011 and 2019. Meanwhile, a huge increase in public expenditure might have triggered a...

Many stakeholders in the global anti-money laundering (AML) space, including correspondent banks, rely upon explicit or de facto AML sovereign rating services. This reliance is similar to that reposed by fixed income investors in sovereign debt ratings.In this paper we demonstrate that sovereign...

Foreign currency borrowings by emerging market corporations have increased significantly in the post-global financial crisis. Extant literature has mainly focused on the cause of the increase in foreign currency borrowings. In this paper, we study the consequences of the increase in foreign...

This paper presents a continuous-time model of sovereign debt. In it, a relatively impatient sovereign government's hidden type switches back and forth between a commitment type, which cannot default, and an optimizing type, which can default at any time, and assume outside lenders have...

The challenge of managing sovereign debt comes with a lot of complex and real strategic approaches to retain the interest of lenders while the borrower nation is helped to retain the capacity to avoid defaults. The issues at play during negotiations and documentations critical of which are the...

We challenge the narrative that climate change transition risk is not being priced into sovereign bond markets. Climate change transition risk, as measured by carbon dioxide emissions, natural resources rents and renewable energy consumption, are factored into sovereign bond yields (and spreads)...

This paper analyzes the implications of international asset risks for the operation of the international adjustment process, with special emphasis on the scope for monetary policy. After a brief review of actual practice in the evaluation of country risk, the paper discusses a number of...

We analyse the effects of sovereign risk premium on bank profitability amongst 154 Eurozone banks during the period 2005 – 2019. In contrast to some of the results in the previous literature, we find that the euro area banks have not suffered too much from the extremely low and negative...

We develop a stylised model of multiple equilibria, with country risk spreads at the focus of the analysis. Fears that the country default on its debt triggers a reversal in the direction of inflows of international financial capital raise interest-rate spreads and thus the cost of servicing the...

Investors recently adopted a novel approach to sustainable investing: engaging with countries to advance sustainable development. But engaging with sovereign entities on sustainability challenges – such as those defined by the Sustainable Development Goals (SDGs) - is a complex endeavor. To...

This paper shows that the patterns of optimal tax rates and borrowing in the presence of endogenous borrowing constraints differ considerably from the patterns observed with fully integrated capital markets. We study a developing country characterized by a costly tax collection. Its access to...

The thesis that sovereign debt and capital flight have some causative effect on the growing insecurity in Africa is one that has not been fully examined. That is the submission of this paper and the need to address it. Fighting insecurity comes at a huge cost and much of the funds diverted to...

We explore the joint effect of expected government support to banks and changes in sovereign credit ratings on bank stock returns using data for banks in 37 countries between 1995 and 2011. We find that sovereign credit rating downgrades have a large negative effect on bank stock returns for...

A fiscal program that redistributes income from rich to poor individuals indirectly redistributes tax revenues from regions hit by a favorable shock to regions hit by an unfavorable one. Centralized fiscal redistribution has therefore been advocated as a way to insure individuals against...

This paper examines the role of sovereign default beliefs for macroeconomic fluctuations and stabilization policy in a small open economy where fiscal solvency is a critical problem. We set up and estimate a DSGE model on Turkish data and show that accounting for sovereign risk significantly...

Governments and fiscal stability authorities have an interest in the sovereign-debt implications of climate change being transparent. To this end, we look at the exposure of EU sovereigns to climate risks, study international best practices, and describe the transmission channels from climate...

We show that internationally diversified portfolios carry sizeable political risk premia. We use a tail-risk portfolio selection model to obtain political efficient frontiers from skewed return distributions and manage political risk, and design an inference test to draw conclusions. We find...

This paper analyzes the international reserve-holding behavior of developing countries. It shows that political-economy considerations modify the optimal reserve level determined by efficiency criteria. A country characterized by volatile output, inelastic demand for fiscal outlays, high tax...

Using a comprehensive dataset from German banks, we document the usage of sovereign credit default swaps (CDS) during the European sovereign debt crisis of 2008-2013. Banks used the sovereign CDS market to extend, rather than hedge, their long exposures to sovereign risk during this period....

This paper introduces serial defaults in the structural model of Jeanneret (2015. Journal of Financial and Quantitative Analysis 50, 963-985). We consider a government that can default multiple times, deciding endogenously the default thresholds and the optimal leverage. Under the extended...

We provide a comprehensive account of the evolution of the currency composition of sovereign and corporate external borrowing by emerging markets over the past fifteen years. We show that a higher reliance on foreign currency debt by the corporate sector is associated with higher sovereign...

This paper contains the statistics of a survey about the Risk-Free Rate (RF) and the Market Risk Premium (MRP) used in 2021 for 88 countries. We got answers for 92 countries, but we only report the results for 88 countries with more than 6 answers. Many respondents use for European countries a...

The connection between sovereignty and law is fundamental for both domestic (internal sovereignty) and the international (external sovereignty) purposes. As the dominant forms of government have evolved over time, so has the way in which we think about sovereignty. Consideration of the...

This paper investigates empirically whether there is a negative relationship between a country's risk premium and the balance sheet effect, as implied by recent theories emphasizing financial imperfections. We find evidence that balance sheet effects, stemming from the increase in the external...

Developing countries present investors with compelling opportunities to influence the most substantial improvement in social and economic sustainability per unit of investment. We present a novel framework that seeks to enrich the assessment of sovereign creditworthiness, encourage investment in...

The application of the ultra vires doctrine to international state contracts is a perennial of international law. This essay investigates the role of sovereign borrowers’ local laws in determining the validity of international sovereign debt contracts. More specifically, it analyses whether...

Currently, the beta-testing phase has only been completed, testing it for South Africa. A service provider has been appointed to pilot the tool in six African countries together with CABRI. The process only works effectively through a series of focus group and stakeholder engagements sessions,...

Money Laundering and Tax Evasion: • Uganda has the highest BASEL Money Laundering Overall index of 8.01• Kenya has the highest money laundering attractiveness index of 3.6 while all the other 5 Africancountries analysed have an index of between 1.1 and 1.3• Kenya is far more attractive...