Pricing Sovereign Debt in Resource-Rich Economies
Author | : Thomas McGregor |
Publisher | : International Monetary Fund |
Total Pages | : 30 |
Release | : 2019-11-08 |
ISBN-10 | : 9781513519821 |
ISBN-13 | : 1513519824 |
Rating | : 4/5 (21 Downloads) |
Download or read book Pricing Sovereign Debt in Resource-Rich Economies written by Thomas McGregor and published by International Monetary Fund. This book was released on 2019-11-08 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: How do oil price movements affect sovereign spreads in an oil-dependent economy? I develop a stochastic general equilibrium model of an economy exposed to co-moving oil price and output processes, with endogenous sovereign default risk. The model explains a large proportion of business cycle fluctuations in interest-rate spreads in oil-exporting emerging market economies, particularly the countercyclicallity of interest rate spreads and oil prices. Higher risk-aversion, more impatient governments, larger oil shares and a stronger correlation between domestic output and oil price shocks all lead to stronger co-movements between risk premiums and the oil price.