Government Bonds in Domestic and Foreign Currency: The Role of Institutional Factors

38 Pages Posted: 6 Aug 2003

See all articles by Stijn Claessens

Stijn Claessens

Bank for International Settlements (BIS)

Daniela Klingebiel

World Bank - Policy Unit

Sergio L. Schmukler

World Bank - Development Research Group (DECRG)

Date Written: July 25, 2003

Abstract

This paper studies how institutional factors affect the size and currency composition of government bonds for a large sample of economies. Important for the debate on limiting financial crises, we find that less flexible exchange rate regimes are associated with larger foreign currency bond markets, suggesting countries either aim to signal their commitment to a fixed exchange rate regime or face moral hazard from international bailouts. We also find evidence that bigger economies with wider domestic investor bases have relatively larger domestic currency and smaller foreign currency bond markets. And foreign investor demand is mainly geared to foreign currency bonds.

Keywords: government debt, government bond markets, sovereign bonds, foreign currency debt, currency structure, institutions, exchange rate regime

JEL Classification: F21, F33, F34, F36, G15, G18

Suggested Citation

Claessens, Stijn and Klingebiel, Daniela and Schmukler, Sergio, Government Bonds in Domestic and Foreign Currency: The Role of Institutional Factors (July 25, 2003). World Bank Policy Research Working Paper No. 2986. Available at SSRN: https://ssrn.com/abstract=385721

Stijn Claessens (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Daniela Klingebiel

World Bank - Policy Unit ( email )

1818 H Street NW
Room MC 9-903
Washington, DC 20433
United States
202-473-7470 (Phone)
202-522-2031 (Fax)

Sergio Schmukler

World Bank - Development Research Group (DECRG) ( email )

1818 H. Street, N.W.
MSN MC 3-301
Washington, DC 20433
United States
202-458-4167 (Phone)
202-522-3518 (Fax)

HOME PAGE: http://www.worldbank.org/en/about/people/s/sergio-schmukler

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