The problem of maximum likelihood estimation of time-varying parameters is considered. A hierarchical approach is proposed that involves, first, the estimation of the model order and parameters when they are assumed time-invariant. Second, for each parameter, an autoregressive (AR) model, with...

This article presents evidence that the European Monetary System (EMS) bands for the Italian lira and the pound sterling were not credible for most of the period 1990–1992, and especially during the week prior to their withdrawal from the EMS system. Using a simple test, developed by...

Inflation-indexed bonds represent a sizeable source of financing for corporations in emerging market countries, while they provide significant portfolio benefits to investors. In particular, inflation-indexed bonds can reduce borrowing costs and facilitate a maturity extension for a corporate...

The paper introduces a new method for the estimation of time-varying regression coefficients employed in financial modeling. We use Malliavin calculus (stochastic calculus of variations) to estimate the time-varying regression coefficients that appear in linear regression models, and the...

The recent round of debt relief has restored debt sustainability in many low-income countries (LICs). This, along with a continued search for yield and desire for portfolio diversification by investors, has increased the range of viable financing options, including international bonds, for many...

Top down spillovers of sovereign default risk can have serious consequences for the private sector in emerging markets. This paper analyzes the effects of these spillovers using firm-level data from 31 emerging market economies. We assess how sovereign risk affects corporate access to...

Country practices towards managing financial risks on a sovereign balance sheet continue to evolve. Each crisis period, and its legacy on sovereign balance sheets, reaffirms the need for strengthening financial risk management. This paper discusses some salient features embedded in the current...

This paper presents some conventional and new measures of market, credit, and liquidity risks for government bonds. These measures are analyzed from the perspective of a sovereign's debt manager. In particular, it examines duration, convexity, M-square, skewness, kurtosis, and VaR statistics as...