{
  "title": "The Premia on State-Contingent Sovereign Debt Instruments",
  "publication": "IMF Working Papers, December 3, 2021",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2021/12/03/the-premia-on-state-contingent-sovereign-debt-instruments-510780",
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  "summary": "State-contingent debt instruments such as GDP-linked warrants have garnered attention as a potential tool to help debt-stressed economies smooth repayments over business cycles, yet very few studies of the empirical properties of these instruments exist.",
  "sections": [
    {
      "heading": "Overview",
      "content": "- Authors: Deniz O Igan, Taehoon Kim, Antoine Levy\n- Publication date: December 3, 2021\n- Paper type: IMF Working Papers, Working Paper No. 2021/282\n- Core focus: Estimation of the time-varying risk premium of state-contingent sovereign debt instruments, with application to GDP-linked warrants issued by Argentina, Greece, and Ukraine."
    },
    {
      "heading": "Key findings (stylized facts)",
      "content": "- The paper applies a general framework to estimate the time-varying risk premium of a state-contingent sovereign debt instrument and reports three stylized facts:\n  - (i) the risk premium in state-contingent instruments is high and persistent;\n  - (ii) the risk premium exhibits a pro-cyclical pattern;\n  - (iii) the liquidity premium is higher and more volatile than that for plain-vanilla government bonds issued by the same sovereign."
    },
    {
      "heading": "Methodology and empirical scope",
      "content": "- Developed a general framework to estimate time-varying risk premia for state-contingent sovereign debt instruments.\n- Empirical application: GDP-linked warrants issued by Argentina, Greece, and Ukraine.\n- Emphasis on decomposing premia into risk premium and liquidity premium components and characterizing their dynamics over the business cycle."
    },
    {
      "heading": "Model and interpretation",
      "content": "- Presents a model in which investors fear ambiguity.\n- The ambiguity-averse investor model can account for the observed cyclical properties of the risk premium (including pro-cyclicality and persistence)."
    },
    {
      "heading": "Subject coverage and keywords",
      "content": "- Subjects: Asset and liability management, Bonds, Debt restructuring, Financial institutions, Liquidity, Securities, Sovereign bonds\n- Keywords: Bonds, Debt restructuring, estimation framework, GDP-linked warrant, GDP-linked warrants, Global, Liquidity, liquidity premium, Procyclicality, Risk premia, SCDI premium, Securities, Sovereign bonds, State-contingent debt instruments\n\n---\n\n Content in this bundle\n\n- Working Paper\n  - Working Paper (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - Working Paper (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2021/12/03/the-premia-on-state-contingent-sovereign-debt-instruments-510780"
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    "Authors: Deniz O Igan, Taehoon Kim, Antoine Levy",
    "Published: December 3, 2021",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781616357009.001",
    "Authors: Deniz O Igan, Taehoon Kim, Antoine Levy",
    "Publication date: December 3, 2021",
    "Paper type: IMF Working Papers, Working Paper No. 2021/282",
    "Core focus: Estimation of the time-varying risk premium of state-contingent sovereign debt instruments, with application to GDP-linked warrants issued by Argentina, Greece, and Ukraine.",
    "The paper applies a general framework to estimate the time-varying risk premium of a state-contingent sovereign debt instrument and reports three stylized facts:",
    "Developed a general framework to estimate time-varying risk premia for state-contingent sovereign debt instruments.",
    "Empirical application: GDP-linked warrants issued by Argentina, Greece, and Ukraine.",
    "Emphasis on decomposing premia into risk premium and liquidity premium components and characterizing their dynamics over the business cycle.",
    "Presents a model in which investors fear ambiguity.",
    "The ambiguity-averse investor model can account for the observed cyclical properties of the risk premium (including pro-cyclicality and persistence).",
    "Subjects: Asset and liability management, Bonds, Debt restructuring, Financial institutions, Liquidity, Securities, Sovereign bonds",
    "Keywords: Bonds, Debt restructuring, estimation framework, GDP-linked warrant, GDP-linked warrants, Global, Liquidity, liquidity premium, Procyclicality, Risk premia, SCDI premium, Securities, Sovereign bonds, State-contingent debt instruments",
    "**Working Paper**"
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