International Credit Market Research Articles

Prospects for Creating an International Rating Agency with the Participation of Russia

Subject. Credit rating agencies continue to play an important role for financial market participants. Credit ratings are a useful tool for assessing investment risks, overcoming uncertainty, and facilitating companies’ access to credit markets. Meanwhile, national expertise is less and less in demand by the international rating industry, and therefore there is a need to integrate the national rating agencies of individual countries.Purpose. Consideration of the prospects for Russia’s participation in the creation of an international rating agency based on an analysis of current trends in the assignment of credit ratings.Methodology. The methods of dialectics, systemic and comparative analysis, as well as the historical-logical method and the method of systematization were used.Results. The state of the world market of rating services is analyzed from the point of view of the dominance of the American Big Three, including in the context of the functioning of an alternative system for evaluating securities issuers in the European Union. The features of assigning credit ratings in Russia in the conditions of the current geopolitical situation are summarized.Conclusions and prospects. The necessity of merging Russian rating agencies with agencies of other countries is substantiated in order to increase national and foreign demand for their services and increase Russia’s share in the international credit market.

The Genesis of Financial Market Institutionalisation in Ukraine: An International Perspective

The relevance of the article is due to the need for a comprehensive analysis of the latest processes in the global financial system, as well as a complex development of a methodological approach to its study. With the transition to digital technologies in the global financial market, in particular, when processing and storing data in electronic format, there is a change in the form of financial circulation, which can lead to a number of problems and risks. In this context, special attention should be paid to the international credit market and the international bond market, which are, in fact, circulating in cyberspace and are evolving through info-communication technologies. The purpose of this research is an in-depth analysis of the main globalisation processes of the world economy and their impact on the development of competition between exchange and over-the-counter trade. The study used general scientific methods of analysis, theoretical generalisation, and synthesis, as well as methods of mathematical, statistical, and economic analysis. According to the study of the dynamics of capitalisation of the global stock market, the authors of this article identified a trend towards dynamic growth in the use of alternative trading systems, which is a factor in the development of exchange and over-the-counter securities trading. The article provides a comprehensive analysis of the directions of impacts of digitalisation on the global monetary and financial system, among which the positive and negative effects are considered in detail and substantiated. The negative effects of virtualisation of the global monetary and financial system are identified, as well as perspective directions of modification of the economic system and finance with the introduction of digital technologies are formulated. The information presented in this paper can be used to further consider the dynamics of stock market capitalisation in the world, as well as to develop methods to improve the efficiency of digitalisation of operating processes for individual enterprises and the global economy as a whole

COVID-19, nonperforming loans, and cross-border bank lending

A severe economic downturn brought on by the COVID-19 pandemic, combined with high debt levels globally, raises the specter of mounting nonperforming loans (NPLs) in global banking systems. This paper investigates the impact of higher NPL ratios on the availability of bank credit among international lenders and emerging market borrowers. The paper finds that a rise in NPL ratios in both lender and borrower countries is positively associated with higher banking outflows from emerging market economies. Two additional features emerge in the patterns of cross-border banking flows when NPL ratios rise that are related to international credit market imperfections. First, lenders are more responsive to a rise in NPL ratios of same-region borrowers. This is consistent with the “reversion to the mean’’ effect given their generally high exposures to the same-region borrowers. Second, while a high share of US-dollar-denominated debt is generally positively associated with withdrawals of funds from emerging market borrowers, lenders are less responsive to a rise in NPL ratios in emerging market economies if their liabilities are denominated more in US dollars. The results are in line with the “original sin redux” hypothesis.

<i>The influence of the polycentrism in the global finance on the international credit market</i>

<i>The influence of the polycentrism in the global finance on the international credit market</i>

Analysis of the international credit market

Analysis of the international credit market

¿Una feria de cambios a la valenciana? Debate financiero y energía emprendedora en el siglo XVII

En 1619 Felipe IV dio a la estampa una Real Pragmática con la finalidad de regular los cambios realizados entre Valencia y Medina del Campo, llevados a cabo por las familias de negocios en Valencia para percibir intereses por sus préstamos, sin ser acusados de usura. En 1622, la Repú­blica de Génova inauguraba las ferias cambiarias de Novi Ligure, conso­lidando su posición internacional en el mercado del crédito. Estos dos hechos, aparentemente independientes entre sí, conforman un episodio importante para el conocimiento financiero internacional y las transfor­maciones del mercado del crédito mediterráneo durante el siglo XVII. El estudio de las innovaciones financieras en el Mediterráneo puede ofrecer luz sobre la adaptación a un mundo cada vez más global. Es por ello que en este artículo se analizará el sistema de préstamos y cambios en la Edad Moderna, destacando la centralidad de las ferias de Medina del Campo en la Península Ibérica. Posteriormente se estudiará de forma compara­tiva cómo los valencianos usaron las ferias de Medina al igual que los genoveses las de Novi Ligure e, incluso, se prestará atención a la pro­puesta de creación de una institución de cambios propia. Por último, se mostrará cómo Valencia albergó una energía emprendedora durante el seiscientos.

International credit market integration in northwestern Europe in the 1670s

This article studies the financial market integration in the 1670s by examining the effectiveness of triangular exchange arbitrage. The results suggest that international credit markets based on bills of exchange in northwestern Europe were well integrated and responded to exchange-rate differences quickly. The speed of adjustment, ranging between one and three weeks, accorded with the speed of communication, but the transaction cost associated with exchange arbitrage was much lower than that of shipping bullion. Although warfare had a disruptive effect on exchange arbitrage by increasing transaction cost, markets were resilient in remaining efficient.

Sovereign Default Risk, Fiscal Adjustment, and Debt Renegotiation

This paper studies the effects of government capital accumulation on sovereign debt default risk and debt restructuring renegotiation outcomes when government has limited ability to extract revenues from households. We develop a quantitative dynamic stochastic general equilibrium model of sovereign default, debt renegotiation, and fiscal policies, where government chooses between the fiscal instruments of government consumption and government investment. Government capital provides an additional means of adjustment in the face of a bad productivity shock. It also affects government's incentive to re-access the international credit market when a country chooses to default. We implement fiscal policies and rules that restrict foreign debt, especially focusing on how fiscal rules affect government spending dynamics. The model delivers three key predictions. (1) A higher level of government capital implies less risky sovereign debt and higher recovery rates when the government chooses to default. (2) A high debt to output ratio is possible with a sufficient level of government capital. (3) Fiscal adjustment that reduces public investment may be self-defeating.

International borrowing without commitment and informational lags: Choice under uncertainty

A series of recent studies in economic growth theory have considered a class of models of international borrowing where, in the absence of a perfect investment commitment, the borrowing constraint depends on the historical performances of the country. Thus, a better level of past economic activity gives a higher reputation, thereby increasing the possibility of accessing the international credit market. This note considers this problem in a stochastic setting based on the volatility of the internal net capital. We study how the optimal consumption level and the maximal expected welfare depend on the combined influence of the trajectory of past economic variables and the volatile environment. In particular, we show how the strength of the history effect and the relative weight of the historical performance depend on the degree of risk.

A model of sequential reforms and economic convergence: The case of China

Motivated by China's experience, a growth model is developed to explain the repeated interaction between economic reforms and growth in a developing country. Convergence occurs until the developing country reaches a bottleneck, then convergence stops unless the institution is improved. After the reform, convergence resumes until a new bottleneck is encountered, which triggers another reform, and so on. Using recursive methods, I show analytically that, in a perfect international credit market, each reform occurs when the new growth bottleneck just becomes binding; the reform size changes monotonically over time; there are finite reforms and convergence is unceasing until the last constraint binds, so a permanent GDP gap may exist. The model also implies that a politically more powerful government should adopt more gradual reforms. In an imperfect credit market, convergence can be delayed and an initially richer economy can be more likely to adopt insufficient reforms.

Lending constraints, real estate prices and business cycles in emerging economies

We investigate a small open economy with constraints in both the domestic and the international credit market. The informational opaqueness of the domestic market hinders foreign lenders' activity, so that entrepreneurs face looser borrowing constraints vis-à-vis domestic financiers. However, limited capitalization constrains domestic lenders. Calibrating the model to data from Argentina, we find that the interaction between lending and borrowing constraints is a channel through which real interest rate shocks generate fluctuations in output, real estate prices and consumption. External financial liberalization increases volatility and affects welfare more than domestic liberalization but also mitigates the destabilizing impact of domestic deregulation.

The Monetary Policy from the Perspective of the Economic Power Centres’ Restructuring

Our paper analyses the financial implications of monetary redistribution of economic power centres, following the EU enlargement and consolidation, the assertion of strong emerging economies such as those of China, India and Brazil. We analyse the strong impact of the introduction of the euro on the system's reserve currency and the multiple effects of the assertion of emerging economies on the world market. We reveal that the transformation of emerging powers into real planetary powers led to a redistribution of the global decision centres and as well as changing the positions currently held by some powerful countries in the monetary and international financial organizations (IMF, World Bank etc.), U.S. Western European countries currently holding up a privileged status within these organizations. We emphasize the restructuring perspective of the concerned institutions and the registration of some important changes in their strategy. We highlight the fact that the financial and economic power held by the emerging states increases the role of the monetary financial institutions in these countries on the international credit market, as well as contributing to the achievement of financial assistance to underdeveloped countries becomes more consistent, hence the increasing political influence on the states concerned. We capture in context also the changes that are emerging in the area of fiscal policy of a growing number of states, following the positive experience of the emerging countries, which have avoided systematic recording of large budget deficits and public debt remained into bearable limits. It is possible that one might also take the lesson about the positive role of extensive and rigorous regulation of the financial, banking and money markets.

Latin America: Captive to Commodities

The countries of Latin America remain highly susceptible to international political and economic trends. Since 2002, the region has prospered: growth has been close to 6 percent per year—the highest since the 1970s, and far above the lackluster, long-run average of 3 percent. This growth spurt is traced in large part to a bonanza: high international prices for commodities. But credit must also be given to governors who have pursued sober macroeconomic policies. To date the region has navigated the shoals of the concomitant weakening of its most important trading partner—the United States—and the mess in the international credit market. Still, the boom from robust commodities prices, in everything from oil to copper to soybeans, raises unsettling questions.

Default, Settlement, and Repayment History: A Unified Model of Sovereign Debt

This paper proposes a dynamic model of sovereign debt that combines default, settlement, and repayment history. The model addresses two questions: 1) how level of debt and income proflle afiect the length of time a country in default is excluded from the international credit market, and 2) how repayment history afiects the credit limit and interest rate lenders ofier, and the borrower’s incentive to default. In the model, borrowers weigh the beneflts from defaulting against the penalties associated with it, namely a lengthy exclusion from the market and a potential deterioration in the credit terms. The paper models the settlement as a random process to re∞ect ine‐ciencies that arise due to the existence of private information, but conditions the probability of a settlement on the portion of the defaulted debt borrowers agree to repay. The model incorporates repayment history (i.e., the number of years a country has been active in the international credit market) into the information set used by lenders. Quantitative analysis shows that the model can replicate some key stylized facts of sovereign debt: 1) settlement ofiers depend positively on a debtor’s current income level and negatively on its level of debt; 2) the debt-to-GDP ratio that new borrowers or serial defaulters can support is well below the ratio that proven debtors can safely manage; 3) the probability of default is larger for debtors with recent payment di‐culties; 4) once a country defaults, it takes many years of perfect repayment and low levels of debt for that country to gain continuous access to international credit markets at low cost; this process is slow and backsliding into default is di‐cult to avoid.

Indeterminacy in the free-trade world

We show that indeterminacy arises in a discrete-time competitive two-country dynamic model of international trade in which externalities, imperfect competition, public goods, and government intervention are assumed away. The present model is a standard dynamic trade model in the sense that there is neither an international credit market nor international factor mobility, and these intrinsic features are a source of indeterminacy. Indeterminacy is implied by the condition for the existence of a steady state.

Indeterminacy in a dynamic two-country model

The purpose of this paper is to show that indeterminacy can arise in a simple competitive two-country dynamic model of international trade, free of externalities, imperfect competition, and government intervention. This seemingly surprising result is based on an assumption that there is no international credit market. As will be shown later, the assumption implies that dynamic equilibrium paths of our two-country, therefore heterogeneous consumer, model are not generally Pareto-optimal.

Borrowing constraints, non-homothetic preferences, and trade

This paper studies the interaction between inequality and demand patterns for goods in a North–South trade model with credit market imperfections. The paper analyzes the effects of financial market globalization on cross-country patterns of human capital investment. In the model, credit market imperfections arise due to potential default by borrowers in the international credit market, and cause a need for borrowers to have enough wealth to invest in human capital. Under non-homothetic preferences, cross-country differences in human capital investment affect patterns of comparative advantages. When the efficiency of the international credit market is low, financial market globalization causes inequality in human capital investment across countries. When the efficiency of the international credit market is high, product cycles can occur.

Political risk, incentives and international credit market equilibrium

The present article discusses some important issues, dealt with in the literature, which are concerned with the problems faced by emerging economies in the international credit market. Initially, the incentives that encourage international investors to lend are investigated, with special emphasis on the portfolio diversification theory. Next, the incentives that encourage the emerging economies to borrow, and also those that lead to debt servicing, are addressed, with special emphasis on the theory of reputational equilibrium.

Standardising as Governance: The Case of Credit Rating Agencies

The global integration of financial markets has been accompanied by a transformation of their governance structures. Private intermediary organisations now play a more important role than in the past. A prominent example is provided by the commercial credit rating agencies that have established themselves as influential gatekeepers of the international credit market. A problem with this form of intermediation is that when there are errors rating agencies can do considerable damage to borrowers and investors alike. Still, it is very difficult to hold rating agencies accountable. This paper proposes comparing the activity of credit rating agencies with standard setting in order to explain this accountability gap. The argument is that the standards of credit-worthiness established by the rating agencies are difficult to challenge because they are based on neutral expertise, on the one hand, but are subject to mandatory enforcement by financial market regulation, on the other. The resulting compliance without complaints reduces the possibilities for learning. This perspective leads to a research agenda in which the preconditions and institutional remedies for accountability problems of global governance by private intermediary organisations can be comparatively explored.

Optimal tax and debt policy with endogenously imperfect creditworthiness

This paper studies the patterns of optimal tax rates and borrowing in a developing country characterized by a costly tax collection. Its access to the international credit market is determined by the efficiency of the tax system, the relative bargaining power of creditors, and the outstanding debt. Country risk modifies considerably the pattern of taxes and borrowing in recessions. The tax rate exhibits strong counter-cyclical patterns in economies operating close to the credit ceiling, whereas the tax rate exhibits very few cyclical patterns in economies operating on the elastic portion of the supply of credit, where country risk factors are absent.