English, Article, Journal or magazine article edition: The determinants of "domestic" original sin in emerging market economies Julien Reynaud; Arnaud Mehl

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Bookmark: http://trove.nla.gov.au/version/34477
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • The determinants of "domestic" original sin in emerging market economies
Author
  • Julien Reynaud
  • Arnaud Mehl
Physical Description
  • preprint
Notes
  • This paper explains why domestic debt composition in some emerging economies is risky. To this end, it carries out a systematic analysis of the determinants of the so-called domestic original sin, which refers to the inability of emerging economies to borrow domestically in local currency, at long maturities and fixed interest rates. As such, the latter is a measure of financial vulnerabilities arising from domestic debt composition, which encompasses maturity mismatches, rollover risk and interest payment contingency. The paper builds on a large dataset compiled by the authors from national sources. It finds that domestic original sin is particularly severe when inflation is lofty, the debt service-to-GDP ration high, the slope of the yield curve inverted and the investor base narrow. These results suggest that sound macroeconomic policies, attractive long-term yields and policies aimed at widening the investor base are instrumental to overcome domestic original sin, reduce domestic debt riskiness and tilt its composition towards safer, long-term, unindexed, local currency instruments
  • Original sin, domestic debt, emerging economies
  • RePEc:mmf:mmfc06:159
Language
  • English
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