Fiscal sustainability indicators have limited effect on CDS spreads, says IMF paper

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Fiscal sustainability is able to explain only a limited share of the variation of credit default swap spreads, according to an International Monetary Fund paper published on January 24.

Emre Alper, Lorenzo Forni and Marc Gerard, the paper's authors, investigate the pricing of sovereign credit risk over the period 2008–2010 for selected advanced economies by examining two widely used indicators: credit default swap and relative asset swap spreads. The authors want to know whether they provide

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