Debt levels, debt composition, and sovereign spreads in emerging and advanced economies

This paper studies the relationship between sovereign spreads and the interaction between debt composition and debt levels in advanced and emerging market countries. It finds that in emerging market countries there is a significant correlation between spreads and debt levels. This correlation, however, is not statistically significant in countries where most public debt is denominated in local currency. In advanced economies, the magnitude of the correlation between debt levels and spreads is about one fifth of the corresponding correlation for emerging market economies. In Eurozone countries, however, the correlation between spreads and debt ratios is similar to that of emerging market countries. The paper also shows that the financial crisis amplified the relationship between spreads and debt levels within the Eurozone but had no effect on the relationship between spreads and debt in standalone countries. Finally, the paper shows that the relationship between debt levels and spreads is amplified by the presence of large net foreign liabilities. This amplifying effect of net foreign liabilities is larger in the Eurozone than in standalone advanced economies. The paper concludes that debt composition matters and corroborates the original sin hypothesis that, rather than being a mere reflection of institutional weaknesses, the presence of foreign currency debt increases financial fragility and leads to suboptimal macroeconomic policies

Corporate debt, firm size and financial fragility in emerging markets

The post-Global Financial Crisis period shows a surge in corporate leverage in emerging markets and a number of countries with deteriorated corporate financial fragility indicators (Altman's Z-score). Firm size plays a critical role in the relationship between leverage, firm fragility and exchange rate movements in emerging markets. While the relationship between firm-leverage and distress scores varies over time, the relationship between firm size and corporate vulnerability is relatively time-invariant. All else equal, large firms in emerging markets are more financially vulnerable and also systemically important. Consistent with the granular origins of aggregate fluctuations in Gabaix (2011), idiosyncratic shocks to the sales growth of large firms are positively and significantly correlated with GDP growth in our emerging markets sample. Relatedly, the negative impact of exchange rate shocks has a more acute impact on the sales growth of the more highly levered large firms

Debt Sustainability and direction of trade: What does Africa’s shifting engagement with BRIC and OECD tells us?

This study assesses the evolution of debt sustainability in the Sub Saharan African (SSA) region. It also examines the respective contributions of OECD and BRIC to debt sustainability in the region. We reveal how the external demand for SSA goods and services from OECD and BRIC helps to lower ‘debt-to-exports’ and ‘debt-service-to-exports’ ratios, two of the main gauges of debt sustainability. Furthermore, using simple growth accounting, we assess how the net exports by SSA to the OECD and BRIC contributes to the region’s GDP growth, and thus indirectly helps to lower the ‘debt-to-GDP’ ratio, which is another important measure of indebtedness. Our study also compares the ‘actual’ debt levels of SSA with ‘hypothetical’ debt levels that simulate the contributions of OECD and BRIC. On the basis of debt sustainability thresholds of the joint IMF-World Bank Debt Sustainability Framework (DSF), we test how the sustainability of SSA debt has evolved overtime and how much the OECD and BRIC contribute to three classes of ‘weak’, ‘medium’ and ‘strong’ debt sustainability targets

Shear induced instabilities in layered liquids

Motivated by the experimentally observed shear-induced destabilization and reorientation of smectic A like systems, we consider an extended formulation of smectic A hydrodynamics. We include both, the smectic layering (via the layer displacement u and the layer normal p) and the director n of the underlying nematic order in our macroscopic hydrodynamic description and allow both directions to differ in non equilibrium situations. In an homeotropically aligned sample the nematic director does couple to an applied simple shear, whereas the smectic layering stays unchanged. This difference leads to a finite (but usually small) angle between n and p, which we find to be equivalent to an effective dilatation of the layers. This effective dilatation leads, above a certain threshold, to an undulation instability of the layers. We generalize our earlier approach [Rheol. Acta, vol.39(3), 15] and include the cross couplings with the velocity field and the order parameters for orientational and positional order and show how the order parameters interact with the undulation instability. We explore the influence of various material parameters on the instability. Comparing our results to recent experiments and molecular dynamic simulations, we find a good qualitative agreement.Comment: 15 pages, 12 figures, accepted for publication in PR

Debt, economic growth and interest rates: An empirical study of the Swiss case, presenting a new long-term dataset: 1894-2014

Abstract In this paper, relations between public debt, economic growth, and long-term interest rates in Switzerland from 1894 to 2014 are examined. For this purpose, an original long-term dataset on the general gross public debt in Switzerland, namely the aggregation of the Confederation gross debt, the cantons’ gross debts, and the municipal gross debts, was reconstructed. Three different statistical approaches are performed to study relations between this aggregated debt, economic growth, and interest rates. The first consists of the study of correlations between GDP-weighted variables, the second is the study of the correlation between residuals of ARIMA time series models, and the last one studies vector autoregression (VAR) models, allowing us to test Granger causalities between variables. Every approach is performed on the whole time period but also on boom phases and recession phases independently. All the results suggest that the public debt during this period in Switzerland did not have a negative impact on economic growth and did not raise long-term interest rates

Transnational partisanship: idea and practice

That parties might successfully organize transnationally is an idea often met with scepticism. This article argues that while certain favourable conditions are indeed absent in the transnational domain, this implies not that partisanship is impossible but that it is likely to be marked by certain traits. Specifically, it will tend to be episodic, structured as a low-density network and delocalized in its ideational content. These tendencies affect the normative expectations one can attach to it. Transnational partisanship should be valued as a transitional phenomenon, e.g. as a pathway to transnational democracy, more than as a desirable thing in itself