IMF Working Papers

Pricing Sovereign Debt in Resource-Rich Economies

By Thomas McGregor

November 8, 2019

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Thomas McGregor. Pricing Sovereign Debt in Resource-Rich Economies, (USA: International Monetary Fund, 2019) accessed November 21, 2024

Disclaimer: IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Summary

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.

Subject: Asset prices, Consumption, Emerging and frontier financial markets, Financial markets, National accounts, Oil prices, Oil, gas and mining taxes, Prices, Taxes

Keywords: And default, Asia and Pacific, Asset prices, Consumption, Cost parameter, Development, Emerging and frontier financial markets, Equilibrium bond price, Gas and mining taxes, Global, Natural resources, Oil, Oil price, Oil price state, Oil price volatility, Oil prices, Oil revenue cost, Oil revenue cost of default, Open economy, Output volatility, Policy makers, Risk premium, Sovereign debt, Standard deviation terms, Steady state bond price, Steady-state price, Sub-Saharan Africa, WP

Publication Details

  • Pages:

    30

  • Volume:

    ---

  • DOI:

    ---

  • Issue:

    ---

  • Series:

    Working Paper No. 2019/240

  • Stock No:

    WPIEA2019240

  • ISBN:

    9781513516431

  • ISSN:

    1018-5941