Project description:We provide a novel modeling framework to decompose euro area sovereign bond yields into five distinct components: ( i ) expected future short-term risk-free rates and a term premium, ( ii ) a default risk premium, ( iii ) redenomination risk premium, ( iv ) liquidity risk premium, and ( v ) segmentation (convenience) premium. Identification is achieved by considering sovereign yields jointly with other rates, including sovereign credit default swap spreads with and without redenomination as a credit event trigger. We illustrate our model by studying yield components embedded in German, French, Italian, and Spanish sovereign bonds, before and after the onset of the Covid-19 pandemic in 2020, and by examining the impact of European Central Bank (ECB) monetary policy and European Union (EU) fiscal policy announcements in response to the pandemic. We find that all five risk premia became sizable following the onset of the pandemic, and that both monetary and fiscal policy announcements had a pronounced effect on yields, mostly through default, redenomination, and segmentation (convenience) premia.
Project description:Robust seasonal dynamics in microbial community composition have previously been observed in the English Channel L4 marine observatory. These could be explained either by seasonal changes in the taxa present at the L4 site, or by the continuous modulation of abundance of taxa within a persistent microbial community. To test these competing hypotheses, deep sequencing of 16S rRNA from one randomly selected time point to a depth of 10,729,927 reads was compared with an existing taxonomic survey data covering 6 years. When compared against the 6-year survey of 72 shallow sequenced time points, the deep sequenced time point maintained 95.4% of the combined shallow OTUs. Additionally, on average, 99.75%±0.06 (mean±s.d.) of the operational taxonomic units found in each shallow sequenced sample were also found in the single deep sequenced sample. This suggests that the vast majority of taxa identified in this ecosystem are always present, but just in different proportions that are predictable. Thus observed changes in community composition are actually variations in the relative abundance of taxa, not, as was previously believed, demonstrating extinction and recolonization of taxa in the ecosystem through time.
Project description:This paper addresses the impact of bank liquidity on risk-taking behaviour of Chinese banks, and provides evidence for a risk-taking channel of monetary policy operating through bank liquidity. By using bank-level panel data from 123 Chinese commercial banks during 2003-2018, it is found that banks facing lower liquidity risk will be encouraged to take more risk. Moreover, loose monetary policy leads to more aggressive risk-taking by reducing the bank liquidity risk, namely a liquidity risk-taking channel of monetary policy. These findings suggest that authorities should give full consideration to the influence of the monetary policy on bank risk-taking through bank liquidity channels.
Project description:We quantify equity and bond market sensitivity to sovereign ESG scores and their variations which, theoretically, is equivalent to evaluating the demand for ESG at the global scale. We do so by estimating a longitudinal model, at the issue level, that captures exposures to sovereign ESG factors for both equity and fixed income indices. In spite of the surging interest in ESG investing, our results do not support a strong impact of ESG factors on the returns of international markets, implying that the demand for ESG at the country level is not a significant driver of prices. Nevertheless, we document a strong association between GDP growth and ESG scores at the country level.
Project description:This paper studies how the announcement of the ECB's monetary policies stopped the spread of the COVID-19 pandemic to the European sovereign debt market. We show that up to March 9, the occurrence of new cases in euro area countries had a sizeable and persistent effect on 10-year sovereign bond spreads relative to Germany: 10 new confirmed cases per million people were accompanied by an immediate spread increase of 0.03 percentage points (ppt) that lasted 5 days, for a total increase of 0.35 ppt. For periods afterwards, the effect falls to near zero and is not significant. We interpret this change as an indicator of the success of the ECB's March 12 press conference, despite the "we are not here to close spreads" controversy. Our results hold for the stock market, providing further evidence of the effectiveness of the ECB's March 12 announcements in stopping the financial turmoil. A counterfactual analysis shows that without the shift in the sensitivity of sovereign bond markets to COVID-19, spreads would have surged to 4.2% in France, 12.5% in Spain, and 19.5% in Italy by March 18, when the ECB's Pandemic Emergency Purchase Programme was finally announced.
Project description:This paper studies the role of IMF-supported programs in mitigating the likelihood of subsequent sovereign defaults in borrowing countries. Using a panel of 106 developing countries from 1970 to 2016 and an entropy balancing methodology, we find that IMF-supported programs significantly reduce the likelihood of subsequent sovereign defaults. This finding is robust to different specifications of the entropy balancing and alternative identification strategies. Our results suggest that a country that signs a program with the IMF typically experiences a slight improvement in its sovereign credit rating and a decrease in both government debt-to-GDP and fiscal deficit-to-GDP during the program period compared to the period before. Supplementary Information The online version supplementary material available at 10.1057/s41308-021-00135-7.
Project description:This paper studies the relationship between sovereign debt (final) restructuring and sovereign ratings, by distinguishing between commercial and official debt and by considering the creditors' loss (haircut). Institutional Investor's index is taken as a measure of a country's creditworthiness. We find that while a restructuring with private creditors seems to involve some reputational costs, "official defaulters" are not affected (or may even benefit) by the restructuring episodes. Using the Synthetic Control Method, we find further evidence for the heterogeneity of the economic impact of debt restructurings, confirming that official and private restructurings may have different costs and then induce selective defaults.
Project description:The dense overflow waters of the Nordic Seas are an integral link and important diagnostic for the stability of the Atlantic Meridional Overturning Circulation (AMOC). The pathways feeding the overflow remain, however, poorly resolved. Here we use multiple observational platforms and an eddy-resolving ocean model to identify an unrecognized deep flow toward the Faroe Bank Channel. We demonstrate that anticyclonic wind forcing in the Nordic Seas via its regulation of the basin circulation plays a key role in activating an unrecognized overflow path from the Norwegian slope - at which times the overflow is anomalously strong. We further establish that, regardless of upstream pathways, the overflows are mostly carried by a deep jet banked against the eastern slope of the Faroe-Shetland Channel, contrary to previous thinking. This deep flow is thus the primary conduit of overflow water feeding the lower branch of the AMOC via the Faroe Bank Channel.
Project description:The exposure of sovereigns to climate risks is priced and can affect credit ratings and debt servicing costs. I argue that the climate risks to fiscal stability are not receiving adequate attention and discuss how to remedy the situation. After providing evidence of divergent climate risks to advanced economies, I describe the transmission channels from climate change to public finance. Then, I suggest how integrated assessment models (IAMs) can be linked with stochastic debt sustainability analysis (DSA) to inform our understanding of climate risks to sovereign debt dynamics and assess the available fiscal space to finance climate policies. I argue for adopting the narrative scenario architecture developed within the IPCC to bring structure and transparency to the analysis. The analysis is complicated by deep uncertainty -risks, ambiguity, and mis-specifications- of climate change. Using scenario trees, narrative scenarios, and ensembles of models, respectively, we can deal with these three challenges. I illustrate using two prominent IAMs to generate the debt dynamics of a high-debt country under climate risks to economic growth and find adverse effects from as early as 2030. I conclude with the policy implications for fiscal stability authorities.Supplementary informationThe online version contains supplementary material available at 10.1007/s10584-022-03373-4.
Project description:We utilize the global natural experiment created by the COVID-19 outbreak to identify sovereign borrowing capacity in time of need and its determinants. First, we demonstrate that the pandemic creates exogeneous shocks to sovereign borrowing needs-governments borrowed more when hit by more severe pandemic shocks. Second, we show that credible fiscal rules enhance sovereign borrowing capacity, while unsustainable debts in terms of high debt-to-GDP ratio, rollover risk, and sovereign default risk weaken it. Third, we find that, in response to the same pandemic shock, sovereign spreads increase more in emerging economies than advanced economies though the former borrow less during the pandemic. Finally, further analysis reveals that pegged exchange rate regimes, open capital accounts, and monetary dependence improve emerging economies' borrowing capacity.