Inflation Surge and Sovereign Borrowing: The Role of Policy Practices in Strengthening Sovereign Resilience

Joshua Aizenman () and Huanhuan Zheng
Additional contact information
Joshua Aizenman: USC University Park

IMF Economic Review, 2024, vol. 72, issue 4, No 3, 1347-1385

Abstract: Abstract Sovereign borrowing during inflation surges is a litmus test of a government’s ability to withstand and navigate macroeconomic shocks. Based on transaction-level bond issuance data, we explore how sovereign financing strategies differ between surging and stable inflations and how policy practices affect their ability to weather inflation shocks. We find that governments lean more toward external borrowing in foreign currency during periods of high inflation, in part to reduce borrowing costs. This pattern is particularly prevalent in emerging markets (EMs), especially when the inflation surge is prolonged and severe. We further show that good practices of fiscal discipline and credibly pegged exchange rate regime alleviate external borrowing in foreign currency amid inflation surges.

JEL-codes: F21 F31 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1057/s41308-023-00228-5 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
Working Paper: Inflation Surge and Sovereign Borrowing: The Role of Policy Practices in Strengthening Sovereign Resilience (2023)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pal:imfecr:v:72:y:2024:i:4:d:10.1057_s41308-023-00228-5

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/41308/PS2

DOI: 10.1057/s41308-023-00228-5

Access Statistics for this article

More articles in IMF Economic Review from Palgrave Macmillan, International Monetary Fund
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().