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

44 Pages Posted: 2 May 2007

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)

Abstract

In contrast to some recent research, this paper finds that institutional and macroeconomic factors are related to the depth and currency composition of government bond markets. Using panel data for developed and emerging economies, we find several factors to be systematically associated with bond markets. Aside from economic size (already shown to affect the currency composition), this paper shows that investor bases matter. Economies with deeper domestic financial systems (measured by bank deposits and stock market capitalization) have larger domestic currency bond markets and issue less foreign currency debt, whereas foreign investor demand is positively related to the size and share of foreign currency bonds. Moreover, less flexible exchange rate regimes are associated with more foreign currency issuance. Other relevant variables include inflation, fiscal burden, legal origin, and capital account openness.

Suggested Citation

Claessens, Stijn and Klingebiel, Daniela and Schmukler, Sergio, Government Bonds in Domestic and Foreign Currency: The Role of Institutional and Macroeconomic Factors. Review of International Economics, Vol. 15, No. 2, pp. 370-413, May 2007. Available at SSRN: https://ssrn.com/abstract=983240 or http://dx.doi.org/10.1111/j.1467-9396.2007.00682.x

Stijn Claessens

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 (Contact Author)

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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