Local currency systemic risk

Borri, Nicola,(2018), Local currency systemic risk. , Emerging Markets Review, UNSPECIFIED

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Emerging country governments increasingly issue local currency denominated bonds and foreign investors have been increasing their holdings of these assets. By issuing debt denominated in local currency, emerging country governments eliminate exchange rate risk. The growing stock of local currency government debt in the financial portfolios of foreign investors increases their diversification and exposure to fast growing economies. In this paper, we highlight some of the risks associated to this recent trend. First, we adopt the CoV aR risk-measure to estimate the vulnerability of individual countries to systemic risk in the market for local currency government debt. Second, we show that our country-level estimates of vulnerability increase with the share of local currency debt held by foreign investors. A version of the old adage “When New York sneezes, London catches a cold,” used often to describe the relationship between the stock markets in these two cities, still applies between individual emerging countries and the aggregate market for local currency government debt
Keywords : CoVaR, Emerging markets, Local currency debt, Contagion Systemic risk, UNSPECIFIED
Journal or Publication Title: Emerging Markets Review
Volume: 34
Item Type: Article
Subjects: Manajemen
Ekonomi Pembangunan
Depositing User: Endhar Priyo Utomo
Date Deposited: 30 Dec 2019 03:26
Last Modified: 30 Dec 2019 03:26
URI: https://repofeb.undip.ac.id/id/eprint/1151

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