Lost and Found: Market Access and Public Debt Dynamics

35 Pages Posted: 7 Mar 2017

See all articles by Carlo Cottarelli

Carlo Cottarelli

International Monetary Fund (IMF)

Andrea Filippo Presbitero

Università Politecnica delle Marche - Department of Economics; Centre for Macroeconomics & Finance Research (CeMaFiR)

Antonio Bassanetti

Bank of Italy

Date Written: December 2016

Abstract

The empirical literature on sovereign debt crises identifies the level of public debt (measured as a share of GDP) as a key variable to predict debt defaults and to determine sovereign market access. This evidence has led to the widespread use of (country-specific) debt thresholds to assess debt sustainability. We argue that the level of the debt-to-GDP ratio, whose use is justified on a theoretical and empirical ground, should not be the only fiscal metric to assess the complex relationship between public debt and debt defaults/market access. In particular, we show that, in a large panel of emerging markets, the dynamics of the debt ratio plays a critical role for market access. In particular, given a certain level of debt, a steadily declining debt ratio is associated with a lower probability of debt distress/market loss and with a higher likelihood of market re-access once access had been lost.

Keywords: Sovereign debt, International capital markets, Access to capital markets, Public debt, Debt sustainability, Emerging markets, Econometric models, Debt Sustainability, Fiscal Crises, Default, Market Access, International Capital Markets

JEL Classification: F34, G15, H62, H63

Suggested Citation

Cottarelli, Carlo and Presbitero, Andrea Filippo and Bassanetti, Antonio, Lost and Found: Market Access and Public Debt Dynamics (December 2016). IMF Working Paper No. 16/253. Available at SSRN: https://ssrn.com/abstract=2924358

Carlo Cottarelli (Contact Author)

International Monetary Fund (IMF) ( email )

700 19th Street NW
Washington, DC 20431
United States

Andrea Filippo Presbitero

Università Politecnica delle Marche - Department of Economics ( email )

Piazzale Martelli, 8
Ancona, AN 60121
Italy
+39 0712207074 (Phone)

HOME PAGE: http://sites.google.com/site/presbitero/

Centre for Macroeconomics & Finance Research (CeMaFiR) ( email )

Piazza Mirabello, 2
Milan, 20100
Italy

Antonio Bassanetti

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

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