The Dynamics of Sovereign Credit Risk

2015 ◽  
Vol 50 (5) ◽  
pp. 963-985 ◽  
Author(s):  
Alexandre Jeanneret
Keyword(s):  
Credit Risk ◽  
Sovereign Debt ◽  
Structural Model ◽  
Likelihood Estimation ◽  
Market Uncertainty ◽  
Market Prices ◽  
Sovereign Credit ◽  
Sovereign Spreads ◽  
Sovereign Credit Risk ◽  
European Economies

AbstractThis article proposes a structural model for sovereign credit risk with endogenous sovereign debt and default policies. A maximum-likelihood estimation of the model with local stock market prices generates daily model-implied sovereign spreads. This approach explains two-thirds of the daily variation in observed sovereign spreads for emerging and European economies over the 2000–2011 period. Global factors help to further explain the time variation in sovereign credit risk. In particular, sovereign spreads in emerging markets vary with U.S. market uncertainty, whereas European spreads depend on Euro-zone bond factors.

scholarly journals An Empirical Analysis of Sovereign Credit Risk Co-movement between Japan and ASEAN Countries

2016 ◽  
Vol 8 (4(J)) ◽  
pp. 6-16 ◽  
Author(s):  
Boonlert Jitmaneeroj ◽  
John Ogwang
Keyword(s):  
Credit Risk ◽  
Sovereign Debt ◽  
Credit Default Swap ◽  
Negative Externalities ◽  
Sovereign Credit ◽  
Credit Risks ◽  
Credit Default ◽  
Sovereign Credit Risk ◽  
Asean Countries ◽  
High Possibility

Japan is the most developed economy in Asia. However, it has been on record for being the most heavily indebted country among OECD countries. In many circumstances, the high sovereign debt level indicates a high possibility of sovereign credit risks associated with investment in government bond. The high sovereign credit risk may also generate a number of negative externalities for private businesses operating in the host country. This paper investigates whether sovereign credit risk of Japan as measured by its sovereign credit default swap (SCDS) can better predict and commove with sovereign credit risk of selected ASEAN countries. The bivariate VAR model was used to test for Granger Causalities among these countries SCDS premiums and correlation analysis to investigate co-movements between SCDS of these countries. The results indicate that Japan’s sovereign credit risks do not co-move with those of ASEAN countries, Furthermore, Sovereign credit risks of ASEAN countries tend to lead those of Japan as evidenced by unidirectional causalities from these countries to Japan. The overall suggestion is that sovereign credit risk of Japan is not likely to influence those of ASEAN. The paper concludes with some implications for businesses.

In Sickness and in Debt: The COVID-19 Impact on Sovereign Credit Risk

2020 ◽  
Author(s):  
Patrick Augustin ◽  
Valeri Sokolovski ◽  
Marti G. Subrahmanyam ◽  
Davide Tomio
Keyword(s):  
Credit Risk ◽  
Sovereign Credit ◽  
Sovereign Credit Risk

scholarly journals Central bank gold reserves and sovereign credit risk

2021 ◽  
pp. 102127
Author(s):  
Sawan Rathi ◽  
Sanket Mohapatra ◽  
Arvind Sahay
Keyword(s):  
Central Bank ◽  
Credit Risk ◽  
Sovereign Credit ◽  
Sovereign Credit Risk

Banks’ international assets and sovereign default risk

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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