Directions of government debt securities market development

The securities market is a powerful platform to accumulate capitals for further investment in favor of structural reconstruction of economy, increasing population welfare level at the cost of fund financial instrument holding. As one of financial instruments the government debt securities gained widespread use as reliable, easy-to-use and readily obtainable financial assets. The place of bonds of domestic government loan in the formation of Ukraine’s public debt and financing of the state budget deficit is highlighted in the article. The modern statistics confirms the safety and viability for the use of internal government debt securities, and the author in made research proves significant increase of amounts attracted to budget financial fund from Ukrainian domestic government bonds settlement. The article systemizes the data on main indicators of the domestic market of Ukrainian domestic government bonds, determines the portfolio structure on the basis of ownership and describes ways to expand range of potential investors, for example, by involving physical entities. Several banks – primary dealers were chosen to analyze the purchase terms of Ukrainian domestic government bonds for citizens of Ukraine on the primary market. The directions of developments of domestic internal bet market was determined, and they are to strengthen communication with fund market participants, to concentrate liquidity in certain instruments, to protect investors multilateral trading systems, to make pricing transparent on the Ukrainian domestic government bonds market, to arrange auctions regularly, diversification of foreign currency debt structure portfolio etc. The well-structured process of Ukrainian domestic government bonds emission in the part of public debts management strategy will allow to hold investors with such investment time frame interested to obtain instruments in the mid-run.

Exchange Rate Fluctuations and Firm Leverage

We quantify the effect of exchange rate fluctuations on firm leverage. When home currency appreciates, firms who hold foreign currency debt and local currency assets observe higher net worth as appreciation lowers the value of their foreign currency debt. These firms can borrow more as a result and increase their leverage. When home currency depreciates, the reverse happens as firms have to de-lever with a negative shock to their balance sheets. Using firm-level data for leverage from 10 emerging market economies during the period from 2002 to 2015, we show that firms operating in countries whose non-financial sectors hold more of the debt in foreign currency, increase (decrease) their leverage relatively more after home currency appreciations (depreciations). Combining the leverage data with firm-level FX debt data for 4 emerging market countries, we further show that our results hold at the most granular level. Our quantitative results are asymmetric: the effects of depre-ciations, that are generally associated with sudden stops, are quantitatively larger than those of appreciations, which take place at a slower pace over time during capital inflow episodes. As our exercise compares depreciations and appreciations of similar size, these results are suggestive of financial frictions being more binding during depreciations than a possible relaxation of such frictions during appreciations.

The Predominance of Balance Sheet Effect versus Competitiveness Effect of Exchange Rate on Brazilian Companies

The present research argues that the depreciation of the exchange rate has a negative effect on the balance sheet of Brazilian companies with debt in foreign currency. This effect is mainly on commodity exporters, since it is the class of companies with the highest indebtedness in the international market, as showed by the results. At the same time, companies with foreign currency debt showed a reduction in their investments in moments of depreciation of the exchange rate, which indicates the predominance of the balance sheet effect. The conclusions of the study were obtained through descriptive statistics and econometric tests (panel data) to analyze the effect of foreign currency debt and the exchange rate on investment rate. It was verified that the balance sheet effect generated by the exchange rate depreciation is predominant when compared to the competitiveness effect from 2003 to 2015.

What's wrong with Modern Money Theory: macro and political economic restraints on deficit-financed fiscal policy

The essential claim of Modern Money Theory (MMT) is sovereign currency issuing governments, with flexible exchange rates and without foreign currency debt, are financially unconstrained. This paper analyses the macroeconomic arguments behind that claim and shows they are suspect. MMT underestimates the economic costs and exaggerates the capabilities of deficit-financed fiscal policy. Those analytic shortcomings render it poor economics. However, MMT's claim that sovereign governments are financially unconstrained is proving a popular political polemic. That is because current distressed economic conditions have generated political resistance to fiscal austerity, and MMT fits the moment by countering the neoliberal polemic that government lacks fiscal space because it is akin to a household.

Household Debt Revaluation and the Real Economy: Evidence from a Foreign Currency Debt Crisis

We examine the consequences of a sudden increase in household debt burdens by exploiting variation in exposure to household foreign currency debt during Hungary’s late-2008 currency crisis. The revaluation of debt burdens causes higher default rates and a collapse in spending. These responses lead to a worse local recession, driven by a decline in local demand, and negative spillover effects on nearby borrowers without foreign currency debt. The estimates translate into an output multiplier on higher debt service of 1.67. The impact of debt revaluation is particularly severe when foreign currency debt is concentrated on household, rather than firm, balance sheets. (JEL E21, E32, F34, G51)