Pricing Sovereign Debt in Resource-Rich Economies

31 Pages Posted: 3 Dec 2019

See all articles by Thomas McGregor

Thomas McGregor

International Monetary Fund (IMF)

Date Written: November 2019

Abstract

How do oil price movements affect sovereign spreads in an oil-dependent economy? I develop a stochastic general equilibrium model of an economy exposed to co-moving oil price and output processes, with endogenous sovereign default risk. The model explains a large proportion of business cycle fluctuations in interest-rate spreads in oil-exporting emerging market economies, particularly the countercyclicallity of interest rate spreads and oil prices. Higher risk-aversion, more impatient governments, larger oil shares and a stronger correlation between domestic output and oil price shocks all lead to stronger co-movements between risk premiums and the oil price.

Keywords: Market interest rates, Economic conditions, Financial crises, Real interest rates, Commodity price fluctuations, Risk premium, natural resources, sovereign debt, and default, development, WP, emerge market economy, countercyclical, oil price, inter-temporal, sovereign default

JEL Classification: E32, E44, F34, G15, H63, O11, E01, F16, G21, Q02,

Suggested Citation

McGregor, Thomas, Pricing Sovereign Debt in Resource-Rich Economies (November 2019). IMF Working Paper No. 19/240. Available at SSRN: https://ssrn.com/abstract=3496716

Thomas McGregor (Contact Author)

International Monetary Fund (IMF) ( email )

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

Register to save articles to
your library

Register

Paper statistics

Downloads
14
Abstract Views
111
PlumX Metrics