Essays in sovereign credit risk.

摘要

This dissertation investigates aspects of sovereign credit risk in advanced and emerging economies. It consists of two chapters.;Chapter 1 studies the determinants of sovereign credit default swap (CDS) spreads for 16 advanced economies during the recent financial crisis. We document that the state of the world financial system, and since the beginning of the crisis, the state of a country's domestic financial system, have strong explanatory power for the behavior of CDS spreads. Furthermore, the magnitude of this effect depends on the relative importance of a country's financial system pre-crisis. We also find that CDS spreads behaved differently for countries in the Economic and Monetary Union of the European Union (EMU). Although the level of spreads is lower for member countries, their sensitivities to the health of the financial system are higher compared to non-EMU members. Our results suggest the presence of a private-to-public risk transfer through which market participants incorporate their expectations about financial industry bailouts and the potential burden of government intervention.;Chapter 2 studies the extent to which macro-economic variables govern the dynamics of emerging market sovereign CDS spreads. In this chapter, I propose a structural model of sovereign credit risk based on a country's access to international capital flows through exports, imports and international reserves. Using these macro-fundamentals, I define a sovereign's ability to pay as the maximum amount of foreign currency available for repayment of external debt. The joint dynamics of the ability to pay and the amount of outstanding debt determine the level of default risk and thus the sovereign CDS spread. I implement the model for a sample of six emerging economies for a period covering the recent financial crisis. A calibrated version of the model captures the widening of sovereign spreads during the crisis and provides a good fit for their time-series dynamics. Lastly, I use the model to measure the market-implied level of country liabilities. On average, the value of implied external debt is 13% larger than the reported level of debt.