Expectations of risky bond payments are unobservable and recovery rates for sovereigns are hard to estimate because they have no contractual claims to defined assets and samples of defaults are limited. A geometric version of credit spread is used to derive expected payments, dependent on...

Sovereign spreads can be broken up into two components: the expected loss from default and the risk premium, with the latter reflecting how investors price the risk of unexpected losses. We show that the risk premium is often the larger part of the spread

This paper studies the impact of the state-dependent risk of a government default on the correlation of the scal balance and current account. We use a small open economy model where nonlinear risk premia arise endogenously when the government operates close to its scal limit, i.e. the maximum...

The importance of sovereign bond as a source of financing revenue deficit, benchmarking for corporate bonds and debt management in Africa, calls for continual monitoring of its volatility dynamics. This study evaluates the nature of sovereign bond volatility interaction between African countries...

We explore whether foreign aid affects developing countries' creditworthiness, as proxied by the Institutional Investor's measure of country credit risk. Based on a simple model of international borrowing and lending, we develop the hypothesis that current aid reduces the likelihood of future...

We argue that increased foreign borrowing by the private sector reduces the risk that a developing country's government defaults on its foreign debt. We present a simple model in which private foreign borrowing reflects a surge of private entrepreneurship. A larger "entrepreneurial class" raises...

In the present paper, we build a bivariate semiparametric dynamic panel model to reproduce the joint dynamics of sovereign ratings and government bond yields. While the individual equations resemble Pesaran-type cointegration models, we allow for different long-run relationships in both...