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Code and data files for "Fiscal Policy and Default Risk in Emerging Markets"
TL;DR: In this article, all Matlab and C++ programs necessary to produce the results of the article were described and a spreadsheet with Mexican data was also provided, along with a spreadsheet containing Mexican data.
Abstract: All Matlab and C++ programs necessary to produce the results of the article. There is also a Excel spreadsheet with Mexican data.
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TL;DR: In this paper, the influence of inter-firm linkages between SMEs and large firms on the relationship between an SME's creditworthiness and its access to finance was investigated using Partial Least Squares-Multi Group Analysis (PLS-MGA).
Abstract: This study investigates the influence of inter-firm linkages between small and medium enterprises (SMEs) and large firms on the relationship between an SME's creditworthiness and its access to finance.,Survey questionnaire was distributed to 456 SMEs in the manufacturing sector in the Selangor and Federal Territory of Kuala Lumpur regions and a total of 145 useable responses were gathered. Investigation into the possible differences in the effect of creditworthiness – and its dimensions – on access to finance for SMEs with and without linkages are examined using Partial Least Squares-Multi Group Analysis (PLS-MGA).,It is found that the relationship between creditworthiness and access to finance is significant for both SMEs with and without links to large firms. However, no significant difference is found in the effect of creditworthiness on access to finance for both types of SME. Further analysis on the five different dimensions of creditworthiness shows statistically significant differences between SMEs with links and those without for the dimensions of collateral and condition. This implies that alliances formed between SMEs and large firms do not have much of an influence on the overall creditworthiness but do influence the collateral and condition of the SME.,This study contributes to the understanding of the effects of interfirm linkages on SME creditworthiness and access to finance. To the authors' knowledge no such study has been conducted on links between SMEs and large firms, especially in a developing country such as Malaysia.
13 citations
21 Sep 2019
TL;DR: The authors collected a number of novel contributions for the measurement of financial risk, which addressed partially explored risks or risk takers in a wide variety of empirical contexts, and discussed the types of risk and their measurement techniques evolve quickly.
Abstract: Financial risk measurement is a challenging task because both the types of risk and their measurement techniques evolve quickly. This book collects a number of novel contributions for the measurement of financial risk, which addresses partially explored risks or risk takers in a wide variety of empirical contexts.
13 citations
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TL;DR: In this article, the authors developed a theoretical model of defaultable debt that embeds endogenous public capital accumulation, expenditure composition, production and multi-round debt renegotiations, and quantitatively showed severe decline and slow recovery in public investment -sovereign debt overhang) delay debt settlement.
Abstract: Sovereigns' public capital influences sovereign debt crises and resolution. We compile a dataset on public expenditure composition around restructurings with private external creditors. We show that during restructurings, public investment (i) experiences severe decline and slow recovery, (ii) differs from public consumption and transfers, (iii) reduces share in public expenditure, and (iv) relates with restructuring delays. We develop a theoretical model of defaultable debt that embeds endogenous public capital accumulation, expenditure composition, production and multi-round debt renegotiations. The model quantitatively shows severe decline and slow recovery in public investment – “sovereign debt overhang” – delay debt settlement. Data support these theoretical predictions.
13 citations
Additional excerpts
...Γ(bt, k g t , at) = V (bt, k g t , at) (23)...
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TL;DR: In this article, the authors study the sustainability of public debt in a closed production economy where a benevolent government chooses fiscal policies, including haircuts on its outstanding debt, in a discretionary manner, and characterize a recursive equilibrium where public debt amounts to a sizeable fraction of output in steady state and is nevertheless fully serviced by the government.
Abstract: We study the sustainability of public debt in a closed production economy where a benevolent government chooses fiscal policies, including haircuts on its outstanding debt, in a discretionary manner. Government bonds are held by domestic agents to smooth consumption over time and because they provide collateral and liquidity services. We characterize a recursive equilibrium where public debt amounts to a sizeable fraction of output in steady state and is nevertheless fully serviced by the government. In a calibrated economy, steady state debt amounts to around 84% of output, the government's default threshold is at around 94% of output, and the haircut on outstanding debt at this threshold is around 40%. Both reputational costs of default and contemporaneous costs due to lost collateral and liquidity are essential to generate these empirically plausible predictions.
13 citations
TL;DR: In this article, the authors use corporate bond data from firms belonging to 13 emerging markets and eight industries from 2007 to 2013 to study whether and how country and industry effects determine the spread between their yield and the respective sovereign debt yield.
13 citations
References
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TL;DR: In this paper, a public debt theory is constructed in which the Ricardian invariance theorem is valid as a first-order proposition but where the dependence excess burden on the timing of taxation implies an optimal time path of debt issue.
Abstract: A public debt theory is constructed in which the Ricardian invariance theorem is valid as a first-order proposition but where the dependence excess burden on the timing of taxation implies an optimal time path of debt issue. A central proposition is that deficits are varied in order to maintain expected constancy in tax rates. This behavior implies a positive effect on debt issue of temporary increases in government spending (as in wartime), a countercyclical response of debt to temporary income movements, and a one-to-one effect of expected inflation on nominal debt growth. Debt issue would be invariant with the outstanding debt-income ratio and, except for a mirror effect, with the level of government spending. Hypotheses are tested on U.S. data since World War I. Results are basically in accord with the theory. It also turns out that a small set of explanatory variables can account for the principal movements in interest-bearing federal debt since the 1920s.
3,112 citations
2,337 citations
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TL;DR: In this paper, the authors analyze an economy that lacks a strong legal-political institutional infrastructure and is populated by multiple powerful groups, and they show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks.
Abstract: We analyze an economy that lacks a strong legal-political institutional infrastructure and is populated by multiple powerful groups. Powerful groups dynamically interact via a fiscal process that effectively allows open access to the aggregate capital stock. In equilibrium, this leads to slow economic growth and a “voracity effect,” by which a shock, such as a terms of trade windfall, perversely generates a more-than-proportionate increase in fiscal redistribution and reduces growth. We also show that a dilution in the concentration of power leads to faster growth and a less procyclical response to shocks. (JEL F43, O10, O23, O40)
1,426 citations
"Code and data files for "Fiscal Pol..." refers background in this paper
...7 Lane and Tornell (1999) argue that in economies without strong legal and political institutions, a “voracity” effect may take place....
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TL;DR: In this paper, the authors construct an economy where agents experience uninsurable idiosyncratic endowment shocks and smooth consumption by holding a risk-free asset, and calibrate the economy and characterize equilibria computationally.
1,293 citations
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TL;DR: In this paper, the empirical relation between the interest rates that emerging economies face in international capital markets and their business cycles was investigated, showing that interest rate shocks alone can explain 50% of output fluctuations and can generate business cycle patterns consistent with the regularities described above and with the major booms and recessions in Argentina in the last two decades.
Abstract: This paper documents the empirical relation between the interest rates that emerging economies face in international capital markets and their business cycles The dataset used in the study includes quarterly data for Argentina during 1983-2000 and for Brazil, Mexico, Korea, and Philippines,during 1994-2000 In this sample, interest rates are very volatile, strongly countercyclical, and strongly positively correlated with net exports Output is very volatile and consumption is more volatile than output These regularities are common to all emerging economies in the sample, butare not observed in a developed economy such as Canada The paper presents a dynamic general equilibrium model of a small open economy, in which (i) firms have to pay for a fraction of the input bill before production takes place, and in which (ii) the labor supply is independent of consumptionUsing a version of the model calibrated to Argentina s economy, we find that interest rate shocks alone can explain 50% of output fluctuations and can generate business cycle patterns consistent with the regularities described above and with the major booms and recessions in Argentina in the last two decades We conclude that interest rates are an important factor for explaining businesscycles in emerging economies and further research should be devoted to fully understand their determination
1,167 citations