The Cost of Private Debt Over the Credit Cycle

31 Pages Posted: 1 Feb 2011

See all articles by Dilek Aykut

Dilek Aykut

affiliation not provided to SSRN

Johanna Leigh Francis

affiliation not provided to SSRN

Eugen Tereanu

European Central Bank (ECB)

Date Written: December 2010

Abstract

We identify global and regional fluctuations in international private debt flows to emerging and developing countries using data on cross border loans and international bond issuance over 1993-2009. We estimate the effects of individual borrower characteristics as well as macroeconomic conditions on the cost of foreign borrowing and test whether these effects differ across phases of the lending cycle. We find that public and financial institutions benefit from lower spreads compared to private and nonfinancial firms and that lenders may differentiate the risk associated with the borrower’s industrial sector between good and bad times. The loan (bond) rating has an equally robust spread reduction effect across credit cycle phases. The results also suggest that international reserve holdings and investment ratios have a significant effect on reducing credit spreads for loans, while higher reserve holdings and longer maturities matter more for bond spreads.

Keywords: Borrowing, Business cycles, Credit, Debt, Developing countries, Emerging markets, International bond markets, Manufacturing sector, Private sector, Services sector

Suggested Citation

Aykut, Dilek and Francis, Johanna Leigh and Tereanu, Eugen, The Cost of Private Debt Over the Credit Cycle (December 2010). IMF Working Paper No. 10/283, Available at SSRN: https://ssrn.com/abstract=1751396

Dilek Aykut

affiliation not provided to SSRN ( email )

Johanna Leigh Francis

affiliation not provided to SSRN ( email )

Eugen Tereanu (Contact Author)

European Central Bank (ECB) ( email )

Sonnemannstrasse 22
Frankfurt am Main, 60314
Germany

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