Debt Crisis Research Articles

International exposure and the transmission of financial shocks: Evidence from China

This study explores the impact of adverse financial shocks on Chinese firms through the bank lending channel and the firm borrowing channel. Using new data linking Chinese firms to their bank(s) and three measures of exposure to international markets, we find that banks with greater exposure to the international markets cut lending more during the financial and sovereign debt crises or when there is a negative shock to OECD GDP growth. Furthermore, state-owned bank loans are more pro-cyclical than private bank loans, and would have been even more pro-cyclical if state-owned banks had not assumed any responsibility for stimulus policies. With regard to the firm borrowing channel, we find that firms with higher weighted aggregate exposure to the international markets through banks have lower net debt, cash, employment, and capital investment during crises or when there is a negative shock to OECD GDP growth. Our results have significant implications for how global financial shocks are transmitted in a regulated financial market such as China.

DYNAMIC VOLATILITY SPILLOVERS BETWEEN CURRENCIES OF ASEAN MEMBER COUNTRIES AND CHINA: EVIDENCE FROM TVP-VAR APPROACH

Driven by the importance of analyzing interregional volatility spillover effects, this study investigates dynamic volatility spillovers between the currencies of China– ASEAN Free Trade Area (FTA) member countries by applying the time-varying parameter vector autoregressive (TVP-VAR) connectedness approach to a sample spanning January 1, 2006, to October 31, 2022. The results show that (1) dynamic volatility connectedness varies over time and reaches peaks due to economic events, such as the 2008 global financial crisis (GFC) and the COVID-19 pandemic; (2) the Chinese yuan (CNY) market assumes more of a net receiving role for volatility spillovers after the 811 exchange rate reform, while the Singapore dollar (SGD) market assumes more of a net transmitting role for volatility spillovers in the whole sample period and (3) negative spillovers are dominant during the study period, except during the European debt crisis. Our findings can help China and ASEAN establish an exchange rate coordination mechanism to prevent the cross-country transmission of exchange rate risk.

Public Debt Economic Growth Nexus: How Effective to Allay Resetting Economic Growth of India

There are two primary schools of thought in contemporary debates on the causes of India's debt crisis: those linked to changes in the world economy and those connected to errors in domestic policy. Because of the instability of the world economy, developing countries like India are forced to borrow money from national and international institutions to make up the difference in their spending. For these capital-poor economies to improve their capital stock and stable levels of per capita output, borrowing is considered essential. According to conventional economic theory, public debt can temporarily increase economic development by promoting aggregate demand. Nonetheless, the majority of empirical research conducted in many nations shows that public debt and long-term economic growth are negatively correlated. Theoretically, it is still unclear how much public debt has contributed to India's economic expansion. The purpose of this study was to investigate how public debt affected India's economic growth from 1991 and 2022. The study looked at the connection between India's economic expansion and public debt. The report suggests that borrowed money be used to diversify the productive capacities of the economy and advises cautious management of governmental debts. This would produce sufficient resources to settle the obligations without having a negative impact on the economy.

From Debt to Sustainability: Advancing Wastewater Projects in Developing Countries through Innovative Financing Mechanisms—The Role of Debt-for-Climate Swaps

Developing countries, including Small Island Developing States (SIDSs) and Least Developed Countries (LDCs), are exceptionally vulnerable to climate change due to their distinct geographical and environmental characteristics. Escalating sea levels and heightened salinity levels imperil freshwater reserves, while warmer ocean temperatures and acidification disrupt water demand, tourism, health services, and fisheries. Concurrently, these countries bear the brunt of water shortages, flooding, and declining water quality. However, significant barriers such as limited financing capacities to fund water security initiatives, exacerbated by a growing debt crisis marked by escalating interest rates and inflation, hinder developmental progress and investments in climate adaptation and mitigation endeavors. Consequently, there arises a critical necessity to harness innovative financial mechanisms to transform these debts into opportunities that support effective climate action. This paper explores the potential of debt-for-climate swaps as a catalyst for advancing transformative wastewater projects, focusing on their strategic deployment to underpin critical initiatives. Through case studies and empirical evidence, the paper elucidates how debt-for-climate swaps can enhance sustainable wastewater management systems in developing countries and delineates best practices for leveraging these mechanisms and the roles and responsibilities of key stakeholders, including governments, policymakers, the private sector, communities, and climate financial institutions. Combining theoretical insights with tangible examples, this paper furnishes a comprehensive framework for harnessing debt-for-climate swaps to enhance water security and resilience in developing countries. It offers actionable strategies for policymakers, practitioners, and stakeholders to navigate the complex terrain of climate change and engender sustainable development.

Drifting further apart? Europe's trends of urban-rural political polarisation should not be overstated

Urban-rural polarisation in political attitudes is widely argued to have become a distinctive feature of many Western democracies. Yet, have urban-rural gaps grown over time, as is often suggested? And, if so, do trends in this regard differ across countries? We address these questions leveraging individual-level data from over 300,000 respondents from the European Social Survey over the period 2002-2020 in 25 countries. Overall, we do find evidence of moderate divergence in outlooks between more urban and more rural publics, examining in particular trust towards the EU and views on migration. We also find that there is divergence in terms of feelings of trust in relation to the political system and levels of satisfaction with democracy since the early 2010s, most likely because of the financial and sovereign debt crises. But these gaps have significantly reduced more recently. Furthermore, trends are heterogenous across countries. Overall, this paper demonstrates that value polarisation along the urban density divide should not be over emphasised as divergence between urban and rural Europe is more moderate than in the US, and very issue-based and country-specific.

Empowering women in central banking

ABSTRACT When are women appointed to the board of central banks? While progressive societal gender norms may facilitate women's ascension to leadership positions, recent research indicates that women are more likely to assume leadership positions during crisis periods. Because of the widely documented 'male dominance' in the policy domain of central banking, analyzing changes in women's descriptive representation on central bank boards provides a unique laboratory to study the role of women in economic policymaking. Building on previous literature on women's political leadership, we argue that sovereign debt crises are powerful catalysts for lifting women into leadership positions. We hypothesize that appointing women to central bank leadership positions during sovereign financial distress signals a policy change to bolster monetary policy credibility. Using data covering 90 countries from 2000 to 2017, we show that women are more likely to be appointed to central bank leadership positions during a sovereign debt crisis. A sovereign debt crisis increases the likelihood of women’s appointments to a central bank board by 21.1 percent. To mitigate concerns that our results are spurious, we implement a battery of robustness checks. Our study suggests that women's empowerment can be beneficial in restoring monetary policy credibility during sovereign financial distress.

Climatic oscillations and sovereign debt crises

I present the case for the relationship between climatic oscillations and sovereign debt crisis between 1970 and 2018. I find strong empirical evidence of a relationship between the Antarctic Oscillation, the Madden-Julian Oscillation, the North Atlantic Oscillation, the Pacific North American Pattern, and the Pacific Decadal Oscillation and the incidence of Sovereign Debt Crises. Additionally, the combination of the El Nino Oscillation with the Indian Dipole, the North Atlantic Oscillation and the Pacific North American Pattern are associated with droughts that contributed to Sovereign Debt Crises.

Measuring the impact of the 2008 and 2011 financial crises and the 2015 recovery on the unemployment rate in Italy

Unemployment rate is one of the most important macroeconomic indicators used by governments for setting economic policy, as it provides worthwhile information on a country's labour market condition, on the health of its economic system and on its future growth. In Italy, since the turn of the century, this indicator steadily decreased until the onset of the 2007–2008 global financial crisis, after which it saw rapid growth that continued in the subsequent years and intensified with the 2011 European sovereign debt crisis. A reversal of this trend occurred only since 2015, after almost eight years of growth, when unemployment rate began a slow decline. Using quarterly data derived from official statistics produced by the Labour Force Survey, this study proposes a counterfactual approach based on interrupted time series analysis to measure the severity of the immediate impact and persistence of the 2008 global financial crisis and the 2011 European sovereign debt crisis on the Italian unemployment rate as well as the intensity of the economic recovery in the years after 2015. Differences across population age sub-groups were considered to highlight the effects on youth unemployment, gender, macro-regions, citizenship and level of education and thus obtain a more in-depth analysis.

Research on Debt Crisis Identification and Collaborative Resolution Mechanism of Listed Private Enterprises

Research on Debt Crisis Identification and Collaborative Resolution Mechanism of Listed Private Enterprises

A Study of Debt Problems in the Chinese Real Estate Industry

This paper will focus on real estate industry in China, uses Evergrande group as a case to compare with another Chinese real estate company Vanke and a real estate company of United State which is AvalonBay Communities, Inc. This paper will introduce the background of real estate industry in China, and base on the case which is bankruptcy of Evergrande Group to throughout the causes find out the issues of real estate in China, in causes is discuss of three factors: Industry characteristics, financing channels, loan evaluation, analysing what make Evergrande can owe a massive $2.4 trillion in debt, and analysing the United States real estate industry not usually having such high leverage. Essay will tell the strategy of real estate companies in China usually do. The strategy led to Evergrande group bankruptcy and compare with Vanke uses what strategy avoid debt crisis. Finally, conclude the chaos of real estate industry in China reflected by Evergrande group, recognise the issues of Evergrande group and prevent the significant consequence occur again.

The West African Monetary Zone: is inflation convergence sufficient for a currency union?

The West African Monetary Zone is a proposed monetary union among the nations of The Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone. A key characteristic for a well-functioning common currency is convergence in inflation rates among constituent members. A failure to achieve convergent inflation rates leads to real exchange rate misalignment, balance-of-payments problems, possible debt crises and economic stagnation as (often sticky) prices are all that can adjust when there is no possibility of nominal depreciation. Nigeria is by far the largest of the economies in the proposed union, and will likely dominate in terms of monetary policy. Using a pairwise approach, along with other methods, we find evidence that all other potential members exhibit inflation differentials vis-à-vis Nigeria that are, at a minimum very slow to converge to zero. There is also often slow convergence in inflation differentials among the other five nations. These findings strongly suggest much caution prior to the formal creation of this proposed common currency.

Investor demand in syndicated EFSF/ESM bond issuances

The European Financial Stability Facility (EFSF) and the European Stability Mechanism (ESM) were set up at the peak of the European sovereign debt crisis to issue bonds and lend to countries under current funding stress. This study analyses investor demand in syndicated bond issuances of EFSF and ESM from 2014 to 2020 on an unprecedented granularity level using a dataset of individual orders with statistical inference. Particularly, we investigate orderbook dynamics for three main aspects: first, we determine the main factors segmenting investor demand. Second, we analyse price dynamics in the transactions and their relation to investor demand. Third, we investigate whether any indications of orderbook inflation might explain the increased volatility in orderbook volume. We identify issuance tranche and tenor as the main determinants of investor demand that are largely anticipated in the notional. Further, we note that ESM is doing economical pricing, where the new issue premium tends to be lower in a market context with larger demand. Lastly, we find a mixture of an increasing number and an increasing volume of orders as drivers of large order books. This confirms that there are no indications of orderbook inflation tendencies in the analysed time period.

Agency and structure in the age of European disintegration

This article analyses the causal factors behind the Brexit vote, aiming to contribute to the literature on European disintegration. It addresses how, amidst external factors such as the EU debt crisis and the 2015 refugee crisis, pre-existing ideological forces deeply ingrained in a society can surface and steer a country's trajectory in relation to European integration. Employing a rigorous process-tracing design, it highlights the forces that led to the referendum and its outcome, identifying key patterns that can be extrapolated to comparable cases within the field of EU integration theory. The analysis operates at two levels: it scrutinizes the constraints faced by Cameron's government in the lead-up to the vote, and it probes the British electorate's attitude toward EU and how it was influenced by the Leave campaign. The study draws from an empirical case to identify some of the patterns of this ongoing political process.

The Sri Lankan Economy: From Optimism to Debt Trap

This paper provides an interpretative survey of the economic policy and performance of the Sri Lankan economy during the postindependence era, with a focus on the sources of the country's vulnerability to the unprecedented sovereign debt crisis in the wake of the COVID‐19 pandemic and prospects beyond the crisis. The prime focus of the Extended Fund Facility (EFF) program that Sri Lanka signed with the International Monetary Fund (IMF) in March 2023 is on economic stabilization through fiscal consolidation. The analysis of this present paper infers that recovery from the crisis and placing the economy on a self‐sustained growth path requires combining the standard IMF approach to macroeconomic stabilization with coherent structural adjustment reforms to redress the long‐standing anti‐tradable bias in the incentive structure that was the root cause of the vulnerability to the crisis.

Fragmented property rights and their risks on foreclosed housing: a qualitative comparative analysis based on judicial auctions in China

During China’s transition towards land and housing marketization in the 1980s to 1990s, a series of legal and policy arrangements led to the separation of land ownership from land-use rights, followed by the separation of housing ownership from land-use rights. This has institutionally fragmented the housing property rights, allowing properties to be financialized as collaterals. Consequently, the fragmentation of housing property rights inflicts substantial risks on judicial auctions of foreclosed housing. As China’s real estate sector is grappling with a mounting debt crisis, it becomes imperative to enhance the efficiency of judicial auctions to address bank debts and stabilize the housing financial system. By employing the cs-QCA method with a dataset comprising 136 cases of foreclosed properties, this study reveals the critical role of various configurations of property-rights risks in determining the outcome of judicial auctions. Additionally, it identifies the importance of credible commitments offered by the courts in mitigating property-rights risks. The research expects to provide practical and theoretical insights for China’s courts and financial institutions to manage foreclosed properties effectively.

The 50-year-old Oil Crisis and its Impact on the Global Economy: A Bibliometric Analysis

The world faced different crises, several times, in the last five decades. The COVID-19 pandemic, debt crisis and oil bubble were the most important crises among them. During the crisis, the main financial driving factor was the oil price which transmitted an alarming hit to other economic nexus factors. The objective of this paper was to find out the crisis period, caused by crude oil and its eventuality in different markets’ historical plots. Scopus data represent 605 studies, using the bibliometrix R tool, about crude oil and related crises. Within the context of the contemporary scientific literature, the most significant authors, publications, and research institutions were included in this paper. In the context of the most recent scientific literature, the most significant authors, publications, and research institutions were identified and the relevance of their contributions was established. This research employed disaggregated sectoral analysis and mechanistic analysis on grounded theory, which included moderation analysis. Finally, this bibliometric analysis tried to locate roadblocks in the current literature as well as indicate new directions for investigation.

Back to Maastricht: Public Debt Sustainability and the Fiscal Multipliers

This essay contributes to the debate on the relevance of fiscal multipliers in the design of economic policies. The need for a different methodological perspective emerges from the results produced in the Eurozone by various fiscal consolidation programs, which, after being implemented following the sovereign debt crisis of 2011 and then suspended to address the COVID-19 crisis, are now being reintroduced according to the balanced budget rules set forth by the Maastricht Treaty. Building on the method elaborated by Pasinetti, we identify the sustainability area of the debt-to-GDP ratio within which different levels of public deficit can be achieved based on the fiscal multiplier. The analysis reveals that, under certain country-specific conditions, imposing limits on public spending can be counterproductive to the sustainability of public debt.

Global Reparations within Capitalism: Aspirations and Tensions in Contemporary Movements for Reparatory Justice

ABSTRACTThe idea of global reparations has received increasing attention in recent years, not only with respect to legacies of slavery and colonialism, but also to interrelated issues such as climate change, debt crisis, or ongoing financial transfers from the Global South to the Global North. This article, which introduces and sets the Debate for the 2024 Forum issue on the political economy of 21st century global reparations, offers a critical perspective on contemporary global reparations agendas, including their macroeconomic and development implications for the Global South. It highlights the contentious, unresolved questions about how reparations movements should interact with the highly unequal structures of global capitalism. To what degree should they seek large redistributive gains within these structures, or else aim for more revolutionary standpoints which reject these structures? If the former, would this compromise any hope for reparations to be truly transformative and able to address the challenges presented by global white supremacy? The hope of reparations movements is to make progressive gains that could become the catalyst for more transformative changes on a global scale. At the same time, sympathetic critics question whether reparations are feasible or should be a primary focus of advocacy for achieving racial and climate justice on national as well as global levels. In outlining these points of debate, the article also considers the questions of how to make global reparations work for recipients, and how to finance them. It concludes by elaborating on the challenge of moving towards a more developmentalist emphasis of ‘systemic reparations’.

Crises and Contagion in Equity Portfolios

We examine the international impact of recent financial crises on contagion dynamics within international equity portfolios. First, we highlight the importance of macroeconomics for portfolio weighting for each region, and then we examine contagion via a structural regime-switching model and a contagion test. We also examine sources of contagion using regime variables, crisis events, and macroeconomic variables. In particular, we study the Argentine debt crisis, the US financial crisis, and the EU sovereign debt crisis. The macroeconomic variables include changes in market capitalization, trade integration, GDP growth, inflation rate, and interest rate. We also employ two classifications, one relating to the portfolio weighting scheme and another one that considers implied global and regional betas. The empirical findings reveal the existence of financial contagion for all the crises that we investigate. Both methods produce similar results. Stronger contagion is evident for global rather than regional betas. Europe is the region with the highest level of contagion and the one mostly affected by the crises. As far as macroeconomic variables are concerned, they are very important in two ways. They statistically significantly explain contagion, while they also reveal contagion under various portfolio weighting schemes. Both methods suggest that the Argentinian crisis mainly contributes to contagion. The research implications suggest that asset allocation and portfolio management should consider both the global and the regional aspects of contagion as differences can occur.

Comments by Somkiat Tangkitvanich, on The Sovereign Debt Crisis in Sri Lanka: Anatomy and Policy Options

Comments by Somkiat Tangkitvanich, on The Sovereign Debt Crisis in Sri Lanka: Anatomy and Policy Options