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on International Finance |
| By: | Agnès Bénassy-Quéré (Centre d'Economie de la Sorbonne - Paris School of Economics); Damien Capelle (ENS-Cachan) |
| Abstract: | We study the impact of a broadening of the SDR basket to the Chinese currency on the composition and volatility of the basket. Although, in the past, RMB inclusion would have had negligible impact due to its limited weight, a much more significant impact can be expected in the next decades, and more so if the Chinese currency is pegged to the US dollar. If the objective is to reinforce the attractiveness of the SDR as a unit of account and a store of value through more stability, then a broadening of the SDR to the RMB could be appropriate, provided some flexibility is introduced in the Chinese exchange-rate regime. This issue of flexibility is de facto more important than that of “free usability” to make the SDR more stable, at least in the short and medium run. |
| Keywords: | SDR, renminbi, international monetary system, foreign exchange volatility. |
| JEL: | F31 F33 |
| Date: | 2012–11 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:12079&r=ifn |
| By: | Beirne, John; Fratzscher, Marcel |
| Abstract: | The paper analyses the drivers of sovereign risk for 31 advanced and emerging economies during the European sovereign debt crisis. It shows that a deterioration in countries’ fundamentals and fundamentals contagion – a sharp rise in the sensitivity of financial markets to fundamentals – are the main explanations for the rise in sovereign yield spreads and CDS spreads during the crisis, not only for euro area countries but globally. By contrast, regional spillovers and contagion have been less important, including for euro area countries. The paper also finds evidence for herding contagion – sharp, simultaneous increases in sovereign yields across countries – but this contagion has been concentrated in time and among a few markets. Finally, empirical models with economic fundamentals generally do a poor job in explaining sovereign risk in the pre-crisis period for European economies, suggesting that the market pricing of sovereign risk may not have been fully reflecting fundamentals prior to the crisis. |
| Keywords: | bond spreads; CDS spreads; contagion; ratings; sovereign debt crisis; sovereign risk |
| JEL: | C23 E44 F30 G15 H63 |
| Date: | 2012–12 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:9249&r=ifn |