Hello from the Other Side: Both Government Liabilities and Assets Matter for Sovereign Risk

Jemima Peppel‐srebrny

Journal of Money, Credit and Banking, 2024, vol. 56, issue 6, 1595-1604

Abstract: We provide evidence that for advanced economies' sovereign bond markets in recent decades, both sides of the government balance sheet matter: for explaining government borrowing cost empirically, (i) government assets are significant in addition to government liabilities, and (ii) it is government net worth (total financial and non‐financial assets less liabilities) rather than government liabilities that matters when both are included. The central country‐specific fiscal factor driving sovereign bond yields thus appears to be government net worth. The focus of policy and academic debates though has tended to be narrowly on government debt, even as government net worth has declined substantially in many OECD countries in recent decades.

Date: 2024
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https://doi.org/10.1111/jmcb.13102

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:56:y:2024:i:6:p:1595-1604

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