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International Reserves and Rollover Risk / Javier Bianchi, Juan Carlos Hatchondo, Leonardo Martinez.
- Format:
- Book
- Government document
- Author/Creator:
- Bianchi, Javier.
- Series:
- IMF Working Papers; Working Paper ; No. 2013/033
- IMF Working Papers
- Language:
- English
- Subjects (All):
- Capital movements--Econometric models.
- Capital movements.
- Default (Finance)--Econometric models.
- Default (Finance).
- Risk--Econometric models.
- Risk.
- Physical Description:
- 1 online resource (41 p.)
- Place of Publication:
- Washington, D.C. : International Monetary Fund, 2013.
- Language Note:
- English
- Summary:
- Two striking facts about international capital flows in emerging economies motivate this paper: (1) Governments hold large amounts of international reserves, for which they obtain a return lower than their borrowing cost. (2) Purchases of domestic assets by nonresidents and purchases of foreign assets by residents are both procyclical and collapse during crises. We propose a dynamic model of endogenous default that can account for these facts. The government faces a trade-off between the benefits of keeping reserves as a buffer against rollover risk and the cost of having larger gross debt positions. Long-duration bonds, the countercyclical default premium, and sudden stops are important for the quantitative success of the model.
- Contents:
- Cover; Contents; I. Introduction; Figures; 1. Evolution of international reserves (minus gold) and public debt; A. Related Literature; II. A Three-Period Example; A. Environment; B. Results; III. Model; 2. Sequence of events when the government is not in default; A. Recursive Formulation; B. Recursive Equilibrium; IV. Calibration; Tables; 1. Parameter values; A. Computation; V. Quantitative Results; A. Model Simulations; B. Reserve Accumulation; 2. Simulation Results; C. Capital Flows Over the Cycle and during Sudden Stops; 3. Menus of spread and end-of-period debt levels
- D. Role of Long-Duration Bonds4. Equilibrium borrowing and reserve accumulation policies; 5. Average gross capital flows; 3. Simulation Results with One-Period Bonds; 6. Effect of reserves on credit availability; 7. Effect of reserves on next-period default probability and borrowing; E. Role of Sudden Stops; F. Role of the Endogenous and Countercyclical Spread; 8. Mean debt and reserves for different sudden stop processes; G. Reserve Accumulation for Crisis Prevention; 4. Debt and Reserve Levels in a Model without Default and a Constant Spread; VI. Conclusions
- 5. Simulation Results when Reserves Reduce the Probability of a Sudden StopReferences; A. Appendix; A. Proof of Proposition 1; B. Sudden Stops; 9. Sudden stops in Mexico; 10. Sudden stops in selected countries; 11. Sudden stops in selected countries; 12. Sudden stops in selected countries; 6. Sudden-Stop Episodes
- Notes:
- "December 2012."
- Includes bibliographical references (p. 33-36).
- Description based on print version record.
- ISBN:
- 9781475534559
- 1475534558
- 9781616359362
- 1616359366
- 9781299265097
- 129926509X
- 9781475582413
- 1475582412
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