{
  "title": "Sovereign Defaults: The Role of Volatility",
  "publication": "IMF Working Papers, September 1, 2002",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/sovereign-defaults-the-role-of-volatility-15915",
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  "summary": "While the relationship between volatility and credit risk is central to much of the literature on finance and banking, it has been largely neglected in empirical macro studies on sovereign defaults.",
  "sections": [
    {
      "heading": "Research question and scope",
      "content": "- Investigates the relationship between macroeconomic volatility and sovereign default risk, a topic extensively studied in finance and banking literature but largely neglected in empirical macro studies on sovereign defaults.\n- Empirical analysis covers a panel of 25 emerging market countries over 1970-2001.\n- Breaks down aggregate volatility into external and domestic policy components."
    },
    {
      "heading": "Data and methods",
      "content": "- New econometric estimates for the 25-country panel over 1970-2001.\n- Volatility decomposed into:\n  - External components (e.g., terms of trade volatility)\n  - Domestic policy-induced components (policy volatility variable)"
    },
    {
      "heading": "Key findings",
      "content": "- Countries with historically higher macroeconomic volatility are more prone to default.\n- Default propensity is particularly elevated when part of the volatility is policy-induced.\n- Reducing policy volatility appears key to improving a country's credit standing."
    },
    {
      "heading": "Policy implications and recommendations",
      "content": "- Policy priority: Reduce policy volatility to lower sovereign default risk and improve credit standing.\n- Focus areas implied by subject and keywords:\n  - Fiscal policy and fiscal stance (government balance)\n  - Management of exchange restrictions and foreign exchange policies\n  - Short-term debt management and external debt sustainability\n  - Monitoring and mitigating terms of trade volatility and terms of trade cycles"
    },
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      "content": "- Authors: Bennett W Sutton, Luis Catão\n- Date: September 1, 2002\n- Series: Working Paper No. 2002/149\n- Pages: 26\n- DOI: https://doi.org/10.5089/9781451856903.001\n- ISBN: 9781451856903\n- ISSN: 1018-5941\n\nBennett W Sutton and Luis Catão, \"Sovereign Defaults: The Role of Volatility\", IMF Working Paper No. 2002/149 (September 1, 2002).\n\n---\n\n Content in this bundle\n\n- Sovereign Defaults: The Role of Volatility - WP/02/149\n  - Sovereign Defaults: The Role of Volatility - WP/02/149 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Sovereign Defaults: The Role of Volatility - WP/02/149 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/sovereign-defaults-the-role-of-volatility-15915"
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    "Authors: Bennett W Sutton, Luis Catão",
    "Published: September 1, 2002",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451856903.001",
    "Investigates the relationship between macroeconomic volatility and sovereign default risk, a topic extensively studied in finance and banking literature but largely neglected in empirical macro studies on sovereign defaults.",
    "Empirical analysis covers a panel of 25 emerging market countries over 1970-2001.",
    "Breaks down aggregate volatility into external and domestic policy components.",
    "New econometric estimates for the 25-country panel over 1970-2001.",
    "Volatility decomposed into:",
    "Countries with historically higher macroeconomic volatility are more prone to default.",
    "Default propensity is particularly elevated when part of the volatility is policy-induced.",
    "Reducing policy volatility appears key to improving a country's credit standing.",
    "Policy priority: Reduce policy volatility to lower sovereign default risk and improve credit standing.",
    "Focus areas implied by subject and keywords:",
    "Authors: Bennett W Sutton, Luis Catão",
    "Date: September 1, 2002",
    "Series: Working Paper No. 2002/149",
    "Pages: 26",
    "DOI: https://doi.org/10.5089/9781451856903.001",
    "ISBN: 9781451856903",
    "ISSN: 1018-5941",
    "**Sovereign Defaults: The Role of Volatility - WP/02/149**"
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