Dependence structure between oil price volatility and sovereign credit risk of oil exporters: Evidence using a Copula Approach

Objective - This study analyzes the dynamic relationship between crude oil price and food security related variables (crude palm oil price, exchange rate, food import, food price index, food production index, income per capita and government development expenditure) in Malaysia using a Vector Auto Regressive (VAR) model. Methodology/Technique - The data covered the period of 1980-2014. Impulse response functions (IRFs) was applied to examine what will be the results of crude oil price changes to the variables in the model. To explore the impact of variation in crude oil prices on the selected food security related variables forecast error variance decomposition (VDC) was employed. Findings - Findings from IRFs suggest there are positive effects of oil price changes on food import and food price index. The VDC analyses suggest that crude oil price changes have relatively largest impact on real crude palm oil price, food import and food price index. This study would suggest to revisiting the formulation of food price policy by including appropriate weight of crude oil price volatility. In terms of crude oil palm price determination, the volatility of crude oil prices should be taken into account. Overdependence on food imports also needs to be reduced. Novelty - As the largest response of crude oil price volatility on related food security variables food vouchers can be implemented. Food vouchers have advantages compared to direct cash transfers since it can be targeted and can be restricted to certain types of products and group of people. Hence, it can act as a better aid compared cash transfers. Type of Paper - Empirical Keywords: Crude oil price, Food security related variables, IRF, VAR, VDC

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Banks’ international assets and sovereign default risk

Journal of Financial Economic Policy ◽

10.1108/jfep-07-2020-0169 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Filippo Gori

Keyword(s):

Credit Risk ◽

Default Risk ◽

Sovereign Default ◽

Content Type ◽

Sovereign Credit ◽

Developed Economies ◽

Sovereign Default Risk ◽

Sovereign Credit Risk ◽

Using Data ◽

International Assets

Purpose This paper aims to investigate the nexus between banks’ foreign assets and sovereign default risk in a panel of 15 developed economies. The empirical evidence suggests that banks’ foreign exposure is an important determinant of sovereign default probability. Design/methodology/approach Using data from the consolidated banking statistics (total foreign claims on ultimate risk basis) by the Bank of International Settlements, the author constructs a measure of bank international exposure to peer countries. This measure is then used as the target variable in a panel regression for sovereign credit default swaps. The model includes 15 European and non-European developed economies. Identification is discussed extensively in the paper. Findings Quantitatively, a 1% increase in banks’ cross-border claims increases sovereign default risk by about 0.19%. The relationship is weaker when banks are more capitalised. On the other hand, governments are more vulnerable to credit risk spillovers from banks’ international portfolios when having higher debt to GDP ratios. Originality/value To the best of the author’s knowledge, this is the first paper that attempts explicitly to establish an empirical connection between banks’ international assets and sovereign default risk. To the author’s opinion, this paper represents a contribution to our understanding of how sovereign credit risk spills over across countries. It also extends significantly the existing literature on the determinants of sovereign risk (that primarily focused on fundamentals, market characteristics – such as liquidity – and global factors). This paper ultimately sheds some new light on the role of intermediaries in the international transmission of credit risk, also adding to today’s discussion about the linkages between banks and sovereigns.

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Sovereign Credit Risk in Latin America and Global Common Factors

Macroeconomics and Development ◽

10.7312/columbia/9780231175081.003.0016 ◽

2016 ◽

pp. 333-354 ◽

Cited By ~ 1

Author(s):

Manuel Agosin ◽

Juan Díaz-Maureira

Keyword(s):

Latin America ◽

Credit Risk ◽

Common Factors ◽

Sovereign Credit ◽

Sovereign Credit Risk

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