Debt Service Ratio Research Articles

Finansijsko modeliranje u projektnom finansiranju

The introduction part gives a brief review and basic characteristics of Project Finance. The framework is consisted of the financial model, role of each party in its making and application. It shows how the financial model is being used by the investors in order to calculate their income, by creditors to calculate level of debt ratio and to create a basis for a sensitivity analysis. It provides an overview and the explanation of inputs (macro-economic presumptions, project expense and financing structure, operative income and expenses, withdrawal of a loan and debt servicing, accounting and taxes) and outputs of the financial model (balance sheets, income statements, cash flow statement, debt service ratios and investor's return of equity).

Homeowner Balance Sheets and Monetary Policy

This paper empirically identifies an important channel through which monetary policy affects consumer spending: homeowner balance sheets. A monetary loosening increases home values, thereby strengthening homeowner balance sheets and stimulating household spending due to a combination of collateral and wealth effects. The magnitude of these effects on a given household depends on local housing market characteristics such as local geography and regulation. Cities with the largest geographic and regulatory barriers to new construction see 3-4% responses in real house prices compared with unconstrained, elastic-supply cities where construction holds prices in check. Using non-public geocoded microdata from the Consumer Expenditures Survey, house price and consumption responses are compared across areas differing in local land availability and zoning laws to identify a marginal propensity to consume out of housing of 0.07. Homeowners with debt service ratios in the highest quartile have MPCs as high as 0.14 compared with negligible responses for those with low debt service ratios. This indicates a strong role for collateral effects, as opposed to pure wealth effects, in driving the relationship between home values and spending. I discuss the implications of these results for the aggregate effects and regional heterogeneity in responses to monetary shocks.

An international comparison of the causes of changes in the debt service ratio 1980-1985

The forces leading up to the debt crisis of the 1980s go back a long way. As a country experiences a rising ratio of debt service payments to export earnings so its default risk increases. World indicators show that interest rates were on a rising trend when commodity prices were on a downward trend. However, this is a simplistic analysis. The authors disaggregate the ratio into five components: a change in the volume of debt; a change in the rate of amortisation; a change in the rate of interest; a change in the volume of exports; a change in the price of exports. The article examines these independently in the light of the available data. Results suggest that rescheduling policy is uncoordinated and that debt-management methods can be improved.

What Explains FDI Flows to Latin America? A Pooled Analysis, 1980-2006

This paper estimates a pooled (fixed-effects) FDI investment function that seeks to identify some of the major economic and institutional determinants of FDI flows to nine major Latin American countries during the 1980-2006 period. First, it develops a conceptual framework of analysis that seeks to identify some of the major economic and institutional determinants of FDI. Second, the paper gives an overview of FDI flows to Latin America during the 1990-2011 period, with particular emphasis on their contribution to the financing of gross capital formation. Third, an empirical model for FDI flows to Latin America is outlined and an economic rationale is provided for the included variables and their expected signs. Fourth, the estimates from a panel regression designed to explain the variation in FDI flows to Latin America during the 1980-2006 period suggests that market size (proxied by real GDP), credit provided by the private banking sector, government expenditures on education, the real exchange rate, and the level of economic freedom have a positive and significant effect. On the other hand, public investment spending, the debt-service ratio, and the volatility of the real exchange rate have a negative and significant effect on FDI flows. The panel unit root tests on the residuals of the relevant panel regressions also suggest that there is a stable, long-term relationship among the included variables; i.e., the selected variables in the reported regressions are cointegrated over the relevant time period. Finally, the paper summarizes the major findings and offers some policy prescriptions for attracting FDI flows to the region and enhancing their positive direct and indirect effects.

Country credit risk determinants with model uncertainty

We analyze the economic and political determinants of country credit risk in both developed and emerging economies by using sovereign yield spreads as risk indicators. We document a high degree of model uncertainty and apply Bayesian Model Averaging to deal with this issue. GDP growth and external debt to GDP ratio are highly likely to influence default risk in emerging and developed economies. Inflation, import growth, openness, and trade freedom are additionally relevant in developed economies, whereas developing countries' default risk is also influenced by debt service ratio, history of recent defaults, and the ratio of foreign exchange reserves to imports.

A Microsimulation Model to evaluate Italian Households’ Financial Vulnerability

We build a microsimulation model to monitor the financial vulnerability of Italian households. Starting from household-level data from the Survey on Household Income and Wealth and matching them with macroeconomic forecasts on debt and income, we project the future path of householdsi?½ indebtedness and debt-service ratio. This allows us to assess householdsi?½ vulnerability at a higher frequency and in a more timely manner than by using household data alone. We find that the share of vulnerable households (defined as those with a debt-service ratio above 30 per cent and income below the median) over the total population is projected to be about stable between 2012 and 2014, with a slight decrease in 2015 due to positive income growth. Their debt is also projected to decrease in those years. Overall, we find that the dynamics of income growth are the main driver of householdsi?½ vulnerability.

REVISITING THE ROLE OF EXTERNAL DEBT IN ECONOMIC GROWTH OF DEVELOPING COUNTRIES

This paper proposes a study on the contribution of external debt to the expansion of economic growth for 31 developing countries. Over a period of 36 years, by using dynamic panel data econometrics estimation GMM-system, the results reveal that the accumulation of external debt is associated with a slowdown in the economies of the developing countries. In addition, this paper finds evidence that debt service ratio does not crowd out the investment rate in developing countries. In other words, even though external debt is negatively associated with economic growth, countries are found to be safe from being in the debt overhang hypothesis. Furthermore, there is evidence to support the existence of spatial dependence in the growth model, suggesting the existence of a positive spillover effect of growth among the neighbouring countries.

부채 취약가계 결정 요인

The purpose of this study was to investigate the determinants of households with risky debt loads. The study used financial ratios to determine which households were over-indebted. The 3 ratios used were Debt to Asset ratio, Debt to Financial asset ratio, and Debt Service ratio. Data for this study was the 2011 Survey of Household Finance. Households that demonstrated total debts of 70% or more when compared to total assets were 8.8%. Households that demonstrated a debt load totaling 5 or more times their total financial assets were 19%. Households with monthly repayment obligations of 40% or more of disposable income were 20%. Households that fulfilled all 3 financial ratio criteria were 1.5% of total indebted households. Over-indebted households demonstrated severe economic condition in terms of debt, but not all over-indebted households were categorized as being in economically vulnerable group. The major determinants of households with risky debts were income, asset, purpose of loans, and spending behavior of the households.

Country Risk – Conditions and Trends in Macedonia, Proposals for Reduction in Conditions of Unstable Environment

Having in mind globalization and financial integration, country risk analysis has become extremely important for the international creditors and investors. This paper briefly discusses the concepts and definitions, its basic components, and presents a survey of some quantitative methods that are used to address various issues related to country risk. It also gives a summary review of selected key elements needed in assessing the country risk. Further the paper stress some of the basic indicators for assessment of the country risk (The Debt Service Ratio, Import Ratio, Investment Ratio, VAREX-Variance of Export Revenue, Domestic Money Supply Growth), and their indicative calculation for Macedonia, based on relevant available data. Than follows an overview of basic macroeconomic indicators in Macedonia that are included in the calculation of country risk, and through which an attempt is made to monitor and predict changes in risk exposure of Macedonia in the 2007-2014 period. Proposals for possible reduction of the Macedonia risk exposure in terms of unstable environment are moving toward determination of the underlying strengths and weaknesses of the Macedonian economy, and in direction of developing strategies for promotion of the advantages and reducing the vulnerabilities. That is in order to change the perception of Macedonia in the immediate and wider environment and to attract foreign direct investments and various other forms of investment in the country. Shortly, the goal of the paper is to point the importance of country risk assessment, to determine and compute the basic indicators of country risk in Macedonia, and having in mind those indicators and main macroeconomic indicators to suggest some strategies for its reduction.

Analisis Kesinambungan Transaksi Berjalan Indonesia: 1980 - 2010

This paper attempt to analyze the sustainability of current account in Indonesia. Sustainability analysis of current account is conducted by analysing factors affecting the sustainability of current account for some particular periods. The factors affecting current account sustainability include external debt, debt service ratio, export, real exchange rate, domestic saving and investment, fiscal surplus deficit, economy growth, and capital inflow. The result shows that during period of 1980-2010 current account sustainability facing some disturbances indicated by some factors affecting current account sustainability are lying above the warning level.

ANALISIS PERILAKU INDIKATOR DEBT MARKET

This paper analyze the debt market, focusing on the behavior of soverign yield and Credit Default Swap (CDS). We build several empirical models to test the factors determine these two indicators and apply them using the Indonesian and peers data. The result confirm the significance impact of foreign reserves and VIX index on the bond yield in Indonesia and its peers country. On the composite sovereign bond, the result shows that the real effective exchange rate (REER) and the debt service ratio (DSR) significantly affect the yield, while on the corporate bond yield, the significant explanatory variables are return on equity (ROE), inflation, the current ratio (CR) and net profit margin (NPM). However, there is an anomaly where the impact of the last two variables (CR and NPM) are contrary to the theory.Keyword: Sovereign, bond, yield, debt market, risk, corporate fundamentals.JEL Classification: H63, G31

ANALYSIS OF DEBT MARKET INDICATOR BEHAVIOUR

This paper analyze the debt market, focusing on the behavior of soverign yield and Credit Default Swap (CDS). We build several empirical models to test the factors determine these two indicators and apply them using the Indonesian and peers data. The result confirm the significance impact of foreign reserves and VIX index on the bond yield in Indonesia and its peers country. On the composite sovereign bond, the result shows that the real effective exchange rate (REER) and the debt service ratio (DSR) significantly affect the yield, while on the corporate bond yield, the significant explanatory variables are return on equity (ROE), inflation, the current ratio (CR) and net profit margin (NPM). However, there is an anomaly where the impact of the last two variables (CR and NPM) are contrary to the theory. Keyword: Sovereign, bond, yield, debt market, risk, corporate fundamentals.JEL Classification: H63, G31

The Debt‐Payment‐to‐Income Ratio as an Indicator of Borrowing Constraints: Evidence from Two Household Surveys

Liquidity constraints have been proposed as an important explanation for deviations from the rational expectations/permanent income hypothesis. This paper introduces to the liquidity constraint literature the ratio of a household's debt payments to its disposable personal income, the debt service ratio (DSR). We find that a household with a high DSR is significantly more likely to be turned down for credit than other households. Also, the consumption growth of likely constrained households, identified using the DSR along with the liquid‐asset‐to‐income ratio, is significantly more sensitive to past income than that of other households, confirming the DSR's value in identifying constrained households.

The External Debt‐Servicing Constraint and Public‐Expenditure Composition in Sub‐Saharan Africa

Abstract: In the light of the current global financial and economic crises, how would governments in sub‐Saharan Africa (SSA) allocate their budgets across sectors in response to a binding debt‐servicing constraint? Within a framework of public‐expenditure choice, the present paper estimates constraint‐consistent debt‐service ratios and employs them in a Seemingly Unrelated Regression involving a five‐year panel for up to 35 African countries over 1975–94, a period preceding the Highly Indebted Poor Countries (HIPC) initiatives. While observed debt service is found to be a poor predictor of expenditure allocation, constraining debt servicing shifts spending away from the social sector, with similar impacts on education and health. The implied partial elasticity of the sector's expenditure share with respect to debt is estimated at 1.5, the highest responsiveness by far among all the explanatory variables considered, including external aid. Thus, if the social sector is to be protected, sufficient debt relief for SSA countries should be pursued.

The Effect of Customer Satisfaction on Consumer Spending Growth

Predicting aggregate consumer spending is vitally important to marketing planning, yet traditional economic theory holds that predicting changes in aggregate consumer spending is not possible. Previous attempts to predict consumer spending growth using standard macroeconomic predictor variables have met with little success. The authors show that the lagged change in customer satisfaction, which contributes to future demand, has a significant impact on spending growth. However, this impact is moderated by increases in consumers’ debt service ratio, a key budget constraint that affects consumers’ ability to spend. Using an asymmetric growth model, more than 23% of the variation in the one-quarter-ahead spending growth is explained, which represents a notable improvement over prior specifications.

Credit card debt and consumption: evidence from household-level data

This research investigates the relationship between credit card debt and consumption using household level data. This is a departure from the previous studies which have used aggregate measures of consumption and general debt such as the Debt Service Ratio or total revolving credit. We use a detailed monthly survey of credit card use to impute credit card debt to respondents from the Consumer Expenditure Survey sample. In contrast to some earlier studies using aggregate data, we find a negative relationship between debt and consumption growth. Our work shows that a $1000 increase in credit card debt results in a decrease in quarterly consumption growth of almost 2%. Investigations are also made into effects of debt within different age categories and into the impact of expected income growth on the debt–consumption relationship.

THE REFLECTIONS OF ECONOMIC CRISIS ON THE TURKISH ECONOMY AND THE FUTURE PROSPECTS

In order to properly analyze the economic effects of the global crisis on Turkey, it is necessary to touch on the nature and the salient features of the economic structure of the Turkish economy, that had already been facing some serious problems prior to the economic crisis. Problems, which however, have been largely disguised by IMF supported policies that were being implemented in an environment of high global-liquidity. Export/import and growth data indicate as is also true with other countries except PRC, in Turkey too that, the rapid contraction following September 2008 stemmed from the severe declines in aggregate demand in domestic and export markets. Since contractions --albeit at a much lesser rate-- are forecast for 2009 in Turkey’s main export-markets, it is reasonable to attempt to trigger an upturn by increasing government expenditures and in particular social-overhead investments on the one hand and by stimulating consumption expenditures on the other. Though this will inevitably result in increases in the public deficit, the domestic debt service ratio and so is likely to jack-up inflationary expectations and/or the nominal interest rates, such undesirable consequences can be effectively addressed in the medium/long run by designing auspicious development and industrialization strategies and by implementing the policies these would call-for.

Household Debt: The Final Stage in an Artificially Extended Ponzi Bubble

Household Debt: The Final Stage in an Artificially Extended Ponzi Bubble

Flow-of-Funds Analysis at the ECB – Framework and Applications

The financial crisis has enhanced the need for close monitoring of financial flows in the economy of the euro area and at the global level focusing, in particular, on the development of financial imbalances and financial intermediation. In this context flow-of-funds analysis appears particularly useful, as flow-of-funds data provide the most comprehensive and consistent set of macro-financial information for all sectors in the economy. This occasional paper presents different uses of flow-of-funds statistics for economic and monetary analysis in the euro area. Flow-of-funds data for the euro area have developed progressively over the past decade. The first data were published in 2001, and fully-fledged quarterly integrated economic and financial accounts by institutional sector have been published since 2007. The paper illustrates how flow-of-funds data enable portfolio shifts between money and other financial assets to be assessed and trends in bank intermediation to be monitored, in particular. Based on data (and first published estimates) on financial wealth over the period 1980-2007, the paper analyses developments in the balance sheet of households and non-financial corporations in euro area countries over the last few decades and looks at financial soundness indicators using flow-of-funds data, namely debt and debt service ratios, and measures of financial wealth. Interactions with housing investment and saving are also analysed. In addition, the paper shows how flow-of-funds data can be used for assessing financial stability. Finally, the paper presents the framework for and use of flow-of-funds projections produced in the context of the Eurosystem staff macroeconomic projection exercises, and reports the outcome of a sensitivity analysis that considers the impact of interest rate changes on the interest payments and receipts of households and non-financial corporations. JEL Classification: E44, E47, E51.

On the measure of entropy value of external debt structure for an economy

This paper considers the use of external debt structure to measure the stability of an economy. This is achieved by modifying the existing entropy model to capture the debt service ratio. The modified entropy model is then used to estimate the entropy value of the Nigerian economy.Global Journal of Mathematical Sciences Vol. 6 (1) 2007: pp. 57-62