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Does Procyclical Fiscal Policy Reinforce Incentives to Dollarize Sovereign Debt?, Anna Ilyina, Anastasia Guscina, Herman Kamil

This paper explores the link between the cyclical patterns of macroeconomic and policy variables and the currency composition of domestic sovereign debt in emerging market countries. The empirical analysis is anchored in an equilibrium model, in which the dollarization of sovereign debt arises as a result of the optimal portfolio choices by risk-averse investors, and of a sovereign debt manager who takes fiscal policy as given. The model predicts that in countries where the exchange rate is countercyclical (i.e., the exchange rate depreciates during recessions), a more procyclical fiscal policy (i.e., expansionary in good times and contractionary in bad times) would lead, on average, to a more dollarized domestic sovereign debt. The empirical analysis using the Jeanne-Guscina EM Debt database (2006) on the currency structure of the central government debt in 22 emerging market countries over 1980 - 2005, supports these predictions
Table Of Contents
Cover Page; Title Page; Copyright Page; Contents; I. Introduction; II. Cyclical Patterns in Macroeconomic and Policy Variables in EMs; III. The Model; A. Households; B. Fiscal Policy and Sovereign Debt Management; C. Equilibrium in the Domestic Bond Market; IV. Testing the Empirical Implications of the Model; A. Stylized Facts; B. Empirical Specification; C. Estimation Technique; D. Data and Variable Construction; E. Main Results and Robustness Tests; 1. Countercyclicality of the Exchange Rate: Summary Statistics; 2. Procyclicality of Fiscal Policy: Summary Statistics
Literary Form
non fiction
"July 2010."
Physical Description
1 online resource (60 p.)
Specific Material Designation
Form Of Item

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