The determinants of "domestic" original sin in emerging market economies

This paper explains why domestic debt composition in some emerging economies is risky. To this end, it carries out a systematic analysis of the determinants of the so-called domestic original sin, which refers to the inability of emerging economies to borrow domestically in local currency, at long maturities and fixed interest rates. As such, the latter is a measure of financial vulnerabilities arising from domestic debt composition, which encompasses maturity mismatches, rollover risk and interest payment contingency. The paper builds on a large dataset compiled by the authors from national sources. It finds that domestic original sin is particularly severe when inflation is lofty, the debt service-to-GDP ration high, the slope of the yield curve inverted and the investor base narrow. These results suggest that sound macroeconomic policies, attractive long-term yields and policies aimed at widening the investor base are instrumental to overcome domestic original sin, reduce domestic debt riskiness and tilt its composition towards safer, long-term, unindexed, local currency instrumentsOriginal sin, domestic debt, emerging economies

The determinants of ‘domestic’ original sin in emerging market economies

This paper explains why domestic debt composition in emerging economies is risky. It carries out an analysis of the determinants of ‘domestic’ original sin, which refers to the inability of emerging economies to borrow domestically in local currency, at long maturities and fixed interest rates. The latter is a measure of financial vulnerabilities arising from domestic debt composition, which encompasses maturity mismatches, rollover risk and interest payment contingency. The paper builds on a large dataset compiled by the authors from national sources. It finds that domestic original sin is severe when inflation is lofty, the debt service-to-GDP ratio high, the slope of the yield curve inverted and the investor base narrow. These results suggest that sound macroeconomic policies, attractive long-term yields and policies aimed at widening the investor base are instrumental to reduce domestic debt riskiness and tilt its composition towards safer, long-term, unindexed, local currency instruments. JEL Classification: F34, F41, G15domestic debt, emerging economies, Original sin

Domestic Debt Structures in Emerging Markets : New Empirical Evidence

This paper explains why public domestic debt composition in emerging economies can be risky, namely in foreign currency, with a short maturity or indexed. It analyses empirically the determinants of these risk sources separately, developing a new large dataset compiled from national sources for 33 emerging economies over 1994-2006. The paper finds that economic size, the breadth of the domestic investor base, inflation and fiscal soundness are all associated with risky public domestic debt compositions, yet to an extent that varies considerably in terms of magnitude and significance across sources of risk. Only inflation impacts all types of risky debt, underscoring the overarching importance of monetary credibility to make domestic debt compositions in emerging economies safer. Given local bond markets' rapid development, monitoring risky public domestic debt compositions in emerging economies becomes increasingly relevant to global financial stability.Public domestic debt, composition, risk, emerging economies.

Spatial Disaggregation of Agricultural Production Data

In this paper we develop a dynamic data-consistent way for estimating agricultural land use choices at a disaggregate level (district-level), using more aggregate data (regional-level). The disaggregation procedure requires two steps. The first step consists in specifying and estimating a dynamic model of land use at the regional level. In the second step, we disaggregate outcomes of the aggregate model using maximum entropy (ME). The ME disaggregation procedure is applied to a sample of California data. The sample includes 6 districts located in Central Valley and 8 possible crops, namely: Alfalfa, Cotton, Field, Grain, Melons, Tomatoes, Vegetables and Subtropical. The disaggregation procedure enables the recovery of land use at the district-level with an out-sample prediction error of 16%. This result shows that the micro behavior, inferred from aggregate data with our disaggregation approach, seems to be consistent with observed behavior.Disaggregation, Bayesian method, Maximum entropy, Land use, Production Economics, C11, C44, Q12,

Expected Utility or Prospect Theory Maximizers? Results from a Structural Model based on Field-experiment Data

We elicit risk preferences of French farmers in a field experimental setting under expected utility theory and cumulative prospect theory. We use two different estimation methods, namely the interval approach and the estimation of a random preference model. On average, farmers are risk averse and loss averse. They also exhibit an inverse S-shaped probability weighting function, meaning that they tend to overweight small probabilities and underweight high probabilities. We infer from our results that CPT explains farmers’ behaviour better than EUT in the context of our experiment. We also investigate how preferences correlate with individual socio-demographic characteristics. We find that education and agricultural innovation are negatively linked with risk aversion. Our results also show that age, education, household size and the level of secured income tend to lower farmers’ loss aversion. Finally, older farmers and farmers with large farms distort probabilities less than the others. These findings contribute to the literature which compares expected utility with competing decision theories. They also give important insights into farmers’ behaviour towards risk, which is critical for relevant public policy design.risk preferences, field experiment, experimental economics, prospect theory, Risk and Uncertainty, C91, D81, J16, Q12,