Sovereign debt
Fiscal dominance can invert transmission mechanism, Lahiri and Patel find
Authors show ‘statutory liquidity requirement’ and fiscal dominance can invert the effects of monetary policy or render it impotent; suggest ‘rebalancing’ India’s reform agenda
Rajan flags pitfalls of short-term thinking
RBI governor extols the virtues of macroeconomic stability, defending the central bank’s strict stance on inflation and calling on the government to stick to its fiscal consolidation plans
Haircuts on sovereign debt ‘open the door for more leverage’, research finds
Prolonged low interest rates also contribute to an overleveraged economy in case of crisis; though in times of ‘low crisis’ they can help decelerate fiscal adjustment
ECB paper quantifies spillover from sovereign to corporate credit risk
Research studies direct spillover effects using credit default swaps and data on 226 firms from 15 European countries in aftermath of first Greek bail-out
Hungarian central bank eases by scrapping deposit facility
The central bank announces the closure of its two-week deposit facility in April, in a move it hopes will lead banks to buy government bonds and lower long-term yields
RBI sheds new light on debt management strategy
Central bank unveils more detailed approach to communicating debt management plans, laying out a medium-term strategy that will be updated each year
Bank of Japan tweaks QQE with maturity extension and new ETF purchases
BoJ will continue to buy 80 trillion yen worth of JGBs a year, but with slightly longer to run to maturity; announces new ETF programme to offset sales of old stocks
Paper explores whether governments prefer under-capitalised banks in crises
Governments may prefer banks to be weakly capitalised as this increases the likelihood they will act as buyers of last resort for domestic debt; paper considers impact on regulation
Eurosystem’s asset purchase programme should increase growth by 1% annually, paper says
The Eurosystem’s asset purchase programme could increase growth and inflation by 1% annually for two years, a working paper from the Bank of Italy predicts
Central banks should prepare to deal with sharp drops in liquidity, IMF says
Policy-makers need to take action to halt rising risks relating to liquidity, IMF says; central banks may be able to use collateral policies to deal with crises
BoE’s Shafik sees scope for reducing sovereign spillovers
Policies are available that could help reduce the risk of ‘disorderly spillovers’ between sovereigns, with lessons to be learned from the lender-of-last-resort function, deputy governor says
BIS reveals new data output in review
Bank for International Settlements expands data around international banking, government debt and private debt service ratios; launches new bulletin and online exploration tool
European supervisors flag rising liquidity risks
Supervisors raise concerns over growing market liquidity risks, warning of the combined impact of technology, regulation and competition; asset managers a potential source of contagion
IMF paper challenges idea of debt threshold effect
Countries with high levels of public debt can grow just as fast as their peers, provided the debt is on a downward trajectory, research finds
BoJ predicted to expand QQE, within limits
Analysts are predicting the Bank of Japan will increase asset purchases next month, but researchers are warning of speed bumps ahead
Ukraine strikes debt restructuring deal with main creditors
Agreement would see creditors accept 20% nominal haircut on $18bn worth of debt; finance minister and IMF head hail agreement and stress need for support among bondholders
Strategic default helps explain crises in advanced economies, ECB paper finds
Sovereign debt and financial re-allocation are linked by the use of government bonds as collateral on the interbank lending market, paper notes
BoJ’s Nakaso: ‘No serious problems’ with JGB liquidity
New data shows a drop in market depth, but QE is not threatened, says deputy governor
RBI paper explores challenges in public debt management
Research identifies a ‘narrow investor base’ as one hurdle and considers how to encourage greater participation from retail investors in the market for government securities
ECB researchers examine flight to safety during sovereign debt crisis
Working paper tracks geographical distribution of capital flight, finding different movements by intra-eurozone and external investors; movements ceased when OMTs were unveiled
ECB paper models joint default risk with fat tails
Researchers reject normal distribution in favour of one with fatter tails, find ‘unprecedented’ tail risks in 2011-12 fell sharply after the OMT announcement
IMF paper warns Japan’s QQE may hit the buffers in 2017
Bank of Japan may have to look for new forms of monetary stimulus as it runs up against a shortage of government bonds, which could begin to distort markets
IMF senior counsel explores legal frameworks for public debt management
Senior counsel at IMF’s legal department discusses the many trade-offs involved in designing the legal frameworks underpinning public debt management
Minutes show ECB happy to ‘look through’ volatility
Governing council carefully considered market volatility including the increase in government bond yields in June meeting, concluding it had not ‘materially altered’ economic outlook