بازارهای اوراق قرضه با ریسک سیاسی و مخاطرات اخلاقی

A model of interest rates on sovereign bonds with default risk is presented. The model accounts for interaction between interest rates and default risk. Multiple equilibria and stability issues are examined. The model explores the level of debt that markets will tolerate in a context where there is uncertainty about output growth, fiscal discipline, real exchange rates, and IMF intervention. The effect of likely IMF assistance on the debt ceiling is shown to be large.

The role of interest rates as a potential cause of sovereign default is well established. Higher interest rates make it more costly to roll over existing debt or borrow additional funds. This in turn leads to acquisition of more debt to cover interest payments. It is also well established that interest rates on sovereign debt will rise whenever the risk of default appears to increase. Hence, it is clear that causality runs in both directions between the interest rate and the chance of default. This feature is often described as a vicious cycle, whereby market sentiment can become self-fulfilling and multiple equilibria may exist. It is an endogeneity pattern that is often cited, but it has not been modeled sufficiently. Previous models have failed to treat uncertainty about political willingness to repay as a central issue. I present a model that focuses on uncertainty about the degree of fiscal contraction which policy makers are willing endure. Specifically, there is a maximum threshold for the primary fiscal surplus that can be achieved to stabilize debt levels and preclude default. The model endogenizes the interaction between interest rates and political feasibility of repayment. The model illuminates a variety of short-term and long-term issues regarding sovereign debt. The primary policy implication involves the moral hazard stemming from International Monetary Fund assistance to debtors. Section 2 reviews some previous literature in order to motivate my modeling approach. Section 3 presents a simple version of the model and explores its implications concerning: multiple equilibria, stability of equilibria, and debt ceilings. Section 4 presents the general specification of the model by incorporating GDP growth, partial recovery of principle under default, and real exchange rate shocks. Section 4 also presents an example of the model calibrated to Mexican data. Section 5 incorporates IMF assistance into the model, and illustrates potentially substantial moral hazard problems.

When emerging market sovereign borrowers approach dangerously high levels of debt the interaction between default risk and the size of the interest burden becomes a prominent market concern. The model presented illustrates how this dynamic might operate. The multiple equilibria in the model are not problematic because the low interest equilibrium is stable. However when debt rises and the two loci become tangent the equilibrium is unstable on the right side and large shocks can force a default. In the example presented, based on Mexican data, markets converge to a reasonably benign steady state at low debt levels. However, the addition of IMF assistance to the model has a dramatic effect on eventual debt levels, frequency of crises, and the practical possibility of multiple equilibria. Because the debt limit values are more realistic in the model with IMF intervention, this result seems of practical relevance. There are some significant oversimplifications in the model, but it does capture an important real worldfeature that deserves attention for its policy implications. If it is true that moral hazard enables a persisting deficit bias and leads to a much larger interest burden and chronic crises, then IMF assistance should be scaled back, and fiscal conditionality should be more strict. Such solutions to the moral hazard problem will inevitably cause more defaults in the short term. However, the long-term benefits of a reform that prevents short-sighted leaders from generating a large debt burden on society should outweigh the costs.