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Monday, August 10, 2020 | History

1 edition of Rational liquidity crises in the sovereign debt market found in the catalog.

Rational liquidity crises in the sovereign debt market

Rational liquidity crises in the sovereign debt market

in search of a theory.

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  • 19 Currently reading

Published by International Monetary Fund in Washington, D.C .
Written in English


Edition Notes

Includes bibliographical references.

SeriesIMF working paper -- WP/96/38
ContributionsInternational Monetary Fund.
The Physical Object
Paginationiii, 24 p. ;
Number of Pages24
ID Numbers
Open LibraryOL16720116M

  The European sovereign debt crisis was a period when several European countries experienced the collapse of financial institutions, high government debt, .   Owing to quantitative easing, the public debt (mostly sovereign bonds) of low- and middle-income countries has more than tripled since the global financial crisis. Sovereign bonds are riskier than “official” debt from multilateral institutions and developed-country aid agencies because creditors can dump them on a whim, triggering a.

  Febru The Liquidity Coverage Ratio and Corporate Liquidity Management. Vladimir Yankov 1. This note examines the changes in the liquidity management at banks and nonbank financial firms in the United States that occurred following the proposal of the liquidity coverage ratio (LCR) requirement in and its finalization in   The United States was the first to sound an alarm, but China should fear the looming sovereign debt crisis among oil producers just as much. Beijing will be left holding the bag on sovereign debt in troubled oil and mineral producers, such as Iran and Venezuela, as well as numerous smaller oil producers in Latin America and sub-Saharan Africa.

The interventions of crisis management during the to financial crisis were not simply responses to a set of given developments in markets, banking or neo-liberal capitalism. Nor can those interventions be adequately explained as the actions of sovereign state officials and institutions. The Global Crisis that started with the Lehman Brothers failure in September and intensified, especially in the Eurozone, with the sovereign debt crisis after April was largely centred on dry-ups in wholesale funding liquidity, in stark contrast to historical systemic crises where the runs were mainly by retail depositors.


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Rational liquidity crises in the sovereign debt market Download PDF EPUB FB2

As it turns out, liquidity crises owing to self-fulfilling pessimistic beliefs can arise under these conditions in a very standard model of sovereign debt. Two distinct mechanisms can generate the multiplicity of equilibria: the first is that pessimistic expectations on the part of creditors increase the risk premium charged to the country.

This paper studies under what circumstances creditworthy sovereign borrowers may be denied liquidity by rational creditors. It is shown that, when the creditor side of the market consists of many small investors, multiple rational expectations equilibria may by: Rational liquidity crises in the sovereign debt market: in search of a theory.

[Enrica Detragiache; International Monetary Fund. Research Department,] -- Annotation This paper studies under what circumstances creditworthy sovereign borrowers may be denied liquidity by rational creditors. It is shown that, when the creditor side of the market.

" Rational Liquidity Crises in the Sovereign Debt Market: In Search of a Theory," IMF Staff Papers, Palgrave Macmillan, vol. 43(3), pagesSeptember. This paper studies under what circumstances creditworthy sovereign borrowers may be denied liquidity by rational creditors.

It is shown that, when the creditor side of the market consists of many Author: Enrica Detragiache. This paper studies under what circumstances creditworthy sovereign borrowers may be denied liquidity by rational creditors.

It is shown that, when the creditor side of the market consists of many small investors there may be multiple rational expectations equilibria. Rational Liquidity Crises in the Sovereign Debt Market: In Search of a Theory.

By Enrica Detragiache. Abstract. This paper studies under what circumstances creditworthy sovereign borrowers may be denied liquidity by rational creditors. It is shown that, when the creditor side of the market consists of many small investors, multiple rational.

This paper studies under what circumstances creditworthy sovereign borrowers may be denied liquidity by rational creditors. It is shown that, when the creditor side of the market consists of many small investors there may be multiple rational expectations equilibria. In one equilibrium, creditors’ pessimistic expectations about the borrower&#x;s creditworthiness become self-fulfilling.

the risks they might pose in the event of a sovereign liquidity crisis. •Sixth, a market-led process to develop for inclusion in sovereign debt instruments contractual provisions that facilitate consultation and cooperation between debtors and their private creditors, as well as within the creditor community, in the event of crisis would be.

This paper analyses the European financial crisis through the lens of sovereign bond liquidity. Using novel data we show that government securities are the prime collateral in the European repo market, which is becoming an essential source of funding for the banking system in the Euro area.

We document that repo haircuts on peripheral. This literature has mainly focused on credit risk as the factor explaining spreads and debt capacity in sovereign nations.1However, the recent financial crisis in the US and the sovereign crisis in Europe have highlighted that there is substantial liquidity risk associated with sovereign lending.2Sovereign bonds are mostly traded in over-the-counter markets, where an investor who.

liquidity risk. Abrupt changes in the liquidity of sovereign bonds could a ect the lending decisions of banks.2 This is the rst empirical investigation on the macroeconomic e ects of exogenous changes in liquidity in sovereign debt markets, which we call liquidity shocks.

The Euro crisis constitutes an. Abstract The paper provides a high-frequency analysis of liquidity dynamics in the eurozone sovereign bond market over tranquil and crisis periods. We. "Rational Liquidity Crises in the Sovereign Debt Market: In Search of a Theory," IMF Staff Papers, Palgrave Macmillan, vol.

43(3), pagesSeptember. Enrica Detragiache, " Rational Liquidity Crises in the Sovereign Debt Market; In Search of a Theory," IMF Working Papers 96/38, International Monetary Fund. The secondary market for sovereign bonds is illiquid and the liquidity is endogenous. Such endogenous liquidity has important e⁄ects on the credit spread and the probabil-ity of default.

To study equilibrium implications of such liquidity, I integrate directed search in the secondary market into a macro model of sovereign default. The model gen.

This nightmare scenario is avoidable if we act now. The origins of today’s looming debt crisis are easy to understand.

Owing to quantitative easing, the public debt (mostly sovereign bonds. Highlights We find evidence that Eurozone sovereign bond markets are hit by self-fulfilling liquidity crises. We argue that this can drive member countries of the Eurozone into bad equilibria. During normal times spreads are dissociated from fundamentals (e.g.

government debt ratio). During crises investors take fundamentals into account to price government bonds. Given the debt levels we are heading towards, such bond-market blackmail would be ruinous. Which is why a radical vision of a new financial constitution for Europe should involve a third leg—a reconstitution of the sovereign-debt market.

Strikingly vague. In conventional debates about sovereign debt strikingly vague terms are used. Given the debt levels we are heading towards, such bond-market blackmail would be ruinous.

Which is why a radical vision of a new financial constitution for Europe should involve a third leg — a reconstitution of the sovereign-debt market. Strikingly vague. In conventional debates about sovereign debt strikingly vague terms are used. The European sovereign debt crisis offers a unique opportunity to study the behaviour of bond market liquidity over both crisis and tranquil periods and its interrelations with market volatility, returns, and sovereign credit risk.

We are motivated by the role liquidity plays during economic recessions and expansions. The origins of today’s looming debt crisis are easy to understand. Owing to quantitative easing, the public debt (mostly sovereign bonds) of low- and middle-income countries has more than.Rational Liquidity Crises in the Sovereign Debt Market: In Search of a Theory () Published inthis IMF working paper prepared by Detragiache looks at the scenarios in which “creditworthy sovereign borrowers may be denied liquidity by rational creditors.”.

A sovereign-debt crisis could be in the cards. Globally, emerging-market debt has increased rapidly to over $70 trillion. This has been fueled by a decade-long search for yield in a world of excessive liquidity and low interest rates, delivered courtesy of the solution adopted to deal with the economic fallout of the global financial.