Yasin Kursat Onder's Books

Non-Defaultable Debt and Sovereign Risk

By: Mr.Juan Carlos Hatchondo,Mr.Leonardo Martinez,Yasin Kursat Onder

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Non-Defaultable Debt and Sovereign Risk

By: Mr.Juan Carlos Hatchondo,Mr.Leonardo Martinez,Yasin Kursat Onder

We quantify gains from introducing non-defaultable debt as a limited additional financing option into a model of equilibrium sovereign risk. We find that, for an initial (defaultable) sovereign debt level equal to 66 percent of trend aggregate income and a sovereign spread of 2.9 percent, introducing the possibility of issuing non-defaultable debt for up to 10 percent of aggregate income reduces immediately the spread to 1.4 percent, and implies a welfare gain equivalent to a permanent consumption increase of 0.9 percent. The spread reduction would be only 0.1 (0.2) percentage points higher if the government uses nondefaultable debt to buy back (finance a “voluntary” debt exchange for) previously issued defaultable debt. Without restrictions to defaultable debt issuances in the future, the spread reduction achieved by the introduction of non-defaultable debt is short lived. We also show that allowing governments in default to increase non-defaultable debt is damaging at the time non-defaultable debt is introduced and inconsequential in the medium term. These findings shed light on different aspects of proposals to introduce common euro-area sovereign bonds that could be virtually non-defaultable.

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International Monetary Fund

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ISBN 10

1498313310

ISBN 13

9781498313315

Fiscal Discipline in WAEMU

Rules, Institutions, and Markets

By: Mr.Ermal Hitaj,Yasin Kursat Onder

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Fiscal Discipline in WAEMU

Rules, Institutions, and Markets

By: Mr.Ermal Hitaj,Yasin Kursat Onder

This paper gauges the scope for market discipline and the effectiveness of the regional surveillance framework in the West African Economic and Monetary Union (WAEMU). The paper finds that the responsiveness of sovereign bond rates to governments’ fiscal behavior in the regional financial market remains limited. In addition, the paper examines the effectiveness of fiscal rules and institutions in an environment where financial markets fall short of exerting a significant disciplining effect on governments.

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