Tracking Global Demand for Advanced Economy Sovereign Debt

63 Pages Posted: 18 Jan 2013

See all articles by Serkan Arslanalp

Serkan Arslanalp

International Monetary Fund (IMF)

Takahiro Tsuda

International Monetary Fund (IMF)

Multiple version iconThere are 2 versions of this paper

Date Written: December 2012

Abstract

Recent events have shown that sovereigns, just like banks, can be subject to runs, highlighting the importance of the investor base for their liabilities. This paper proposes a methodology for compiling internationally comparable estimates of investor holdings of sovereign debt. Based on this methodology, it introduces a dataset for 24 major advanced economies that can be used to track US$42 trillion of sovereign debt holdings on a quarterly basis over 2004-11. While recent outflows from euro periphery countries have received wide attention, most sovereign borrowers have continued to increase reliance on foreign investors. This may have helped reduce borrowing costs, but it can imply higher refinancing risks going forward. Meanwhile, advanced economy banks' exposure to their own government debt has begun to increase across the board after the global financial crisis, strengthening sovereign-bank linkages. In light of these risks, the paper proposes a framework - sovereign funding shock scenarios (FSS) - to conduct forward-looking analysis to assess sovereigns' vulnerability to sudden investor outflows, which can be used along with standard debt sustainability analyses (DSA).  It also introduces two risk indices - investor base risk index (IRI) and foreign investor position index (FIPI) - to assess sovereigns' vulnerability to shifts in investor behavior.

Keywords: Sovereign debt, Developed countries, Investment, Demand, Public debt, Debt management, Debt refinancing, Cross country analysis, International Finance, Financial Crises, Portfolio Choice and Investment Decisions., government debt, sovereign debt, central banks, central bank, external debt, debt statistics, public debt, external debt statistics, currency composition, debt management, debt outstanding, reserve countries, debt stock, government loans, domestic investors, government deficit, debt sustainability, external loans, reserve bank, public debt management, official creditors, debt crisis, debt market, debt portfolios, reserve currency, debt managers, domestic investor, total debt stock,

JEL Classification: F30, G01, G11

Suggested Citation

Arslanalp, Serkan and Tsuda, Takahiro, Tracking Global Demand for Advanced Economy Sovereign Debt (December 2012). IMF Working Paper No. 12/284, Available at SSRN: https://ssrn.com/abstract=2202635

Serkan Arslanalp (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Takahiro Tsuda

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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