Sovereign defaults by currency denomination

Alexandre Jeanneret () and Slim Souissi ()
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Alexandre Jeanneret: HEC Montréal - HEC Montréal
Slim Souissi: LITEM - Laboratoire en Innovation, Technologies, Economie et Management (EA 7363) - UEVE - Université d'Évry-Val-d'Essonne - TEM - Télécom Ecole de Management

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Abstract: This paper explores the drivers of sovereign default in 100 countries over the period 1996–2012. We build a new data set of sovereign defaults and find that default events for local and foreign currency bonds are equally likely. However, governments default under different economic and financial conditions depending on the currency in which bonds are issued. The explained variation in default probability rises from 43% to 62% when we account for differences in currency denomination. We also provide evidence that global factors and market sentiment, which are known to drive sovereign spreads, do not help explain the probability of sovereign default. Hence, these factors appear to affect the price of sovereign credit risk, although not the risk itself.

Keywords: Sovereign default; Local currency debt; Foreign currency debt; International bonds (search for similar items in EconPapers)
Date: 2016-02
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Citations: View citations in EconPapers (22)

Published in Journal of International Money and Finance, 2016, 60, pp.197-222. ⟨10.1016/j.jimonfin.2015.03.004⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-03145032

DOI: 10.1016/j.jimonfin.2015.03.004

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