Public Debt Network Newsletter

PDM Network Weekly Newsletter on Emerging Markets
For information, contact the PDM Network Secretariat at: Publicdebtnet.dt@tesoro.it

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PDM NETWORK Monthly Newsletter

n. 7/July - August 2013

ISSN 2239-2033

Dear Partner, this Newsletter contains a list of the latest uploaded resources both in the
documentation and in the event areas of the PDM Network website (www.publicdebtnet.org). The
PDM Network has its main objective in the joint cooperation among its participants regarding the
quantity and quality of information available on the website. So far, it is very appreciated a stronger
collaboration in this field, signaling to the Network Secretariat any documents, news and events
of interest at publicdebtnet.dt@tesoro.it.

Contents

New Documents ............................... 1
Papers ............................................ 1
Articles in reviews ........................ 11
Web Resources ............................. 13
Network News ................................ 19
Annual Reports & Guide 19
Events and Courses ........................ 19
Newly uploaded .......................... 19
Previously signaled..................... 20
Communication Corner ............... 20
Some figures ................................. 20
Participating Institutions in the PDM
Network ........................................ 21

New Documents

Papers

Secondary Market

Determinants of Sovereign Bond Spreads
in Emerging Markets: Local Fundamentals
and Global Factors vs. Ever-Changing
Misalignments (2013)
Csonto Balazs - International Monetary Fund
Ivaschenko Iryna - International Monetary Fund

Abstract: In this paper we analyze the relationship
between global and country-specific factors and
emerging market debt spreads from three different
angles. First, we aim to disentangle the effect of
global and country-specific developments, and find
that while both country-specific and global
developments are important in the long-run, global
factors are main determinants of spreads in the
short-run. Second, we investigate whether and how
the strength of fundamentals is related to the
sensitivity of spreads to global factors. Countries
with stronger fundamentals tend to have lower
sensitivity to changes in global risk aversion. Third,
we decompose changes in spreads and analyze the
behavior of explained and unexplained components
over different periods. To do so, we break down
fitted changes in spreads into the contribution of
country-specific and global factors, as well as
decompose changes in the residual into the
correction of initial misalignment and an
increase/decrease in misalignment. We find that


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changes in spreads follow periods of
tightening/widening, which are well-explained by the
model; and the dynamics of the components of the
unexplained residual follow all the major
developments that impact market sentiment. In
particular, we find that in the periods of severe
marketstress, such as during the intensive phase of
the Eurozone debt crisis, global factors tend to drive
changes in the spreads and the misalignment tends
to increase in magnitude and its relative share in
actual spreads.

Contagion Dynamics in EMU Government
Bond Spreads (2013)
Leschinski Christian - Leibniz University Hannover;
Bertram Philip - Leibniz University Hannover

Abstract: There is a growing consensus that part of
the surge in government bond spreads during the
EMU debt crisis can be explained by wake-up-call
contagion. Evidence on pure contagion however is
very mixed and there are no insights into the
dynamics of these effects. As a contribution to fill
this gap, we apply the canonical contagion
framework of Pesaran and Pick [2007], similar to
Metiu [2012], for daily data from January 2002 until
May 2013. By adapting the contagion function used
by Metiu [2012], we are able to identify the
contagion effects originating from each of the crisis
countries using a two-stage least squares estimator
in a rolling window. This procedure allows us to
analyze changes of the contagion coefficients over
time. We find that pure contagion appears as early
as February 2007 (coinciding with the very first
manifestations of the subprime mortgage crisis)
which is before the bankruptcy of Lehman Brothers
and thus much earlier than the Greek deficit
revision. The effects have a stronger impact during
the subprime crisis than during the EMU crisis and
the main sources of pure contagion effects are
Spain, Italy and Ireland whereas Greece plays only a
minor role.

Repo market

The Run on Repo and the Liquidity
Shortage Problems of the Current Global
Financial Crisis: Europe vs US (2013)
Moro Beniamino - University of Cagliari Italy

Abstract: This paper discusses several key issues
regarding the current Great Crisis which spreads
over two periods. The first includes the 2007-2009
subprime crisis in the US, while the second extended
to a twin sovereign debt and banking crisis in Europe
after 2010, and persists until now. At the core of the
problem is the emergence over the last thirty years
of the shadow banking system, which re-created the
conditions for a panic. This time the panic firstly
took place in the repo market, which suffered a run
when "depositors" required increasing haircuts.
Fears of insolvency reduced interbank lending, and
this so-called "run on repo" caused temporary
disruptions in the pricing system of short-term debt
markets. The subsequent crisis reduced the pool of
assets considered acceptable as collateral, resulting
in a liquidity shortage. With declining asset values
and increasing haircuts, the US banking system was
effectively insolvent for the first time since the Great
Depression. Via the banking system, the American
"run on repo" crisis soon infected the European
financial system, causing a twin sovereign debt and
banking crisis in many peripheral euro area
countries, raising doubts on the survival of the euro
and the regular functioning of the European
Monetary System. The paper concludes that, for a
successful European crisis resolution, we need to
implement a fiscal union and a banking union,
ensuring that fiscal and banking policies in the
Eurozone be partly centralized as to meet the
requirements necessary to the regular functioning of
a monetary union.

Developing Domestic Bond Market

Domestic public debt in low-income
countries: trends and structure (2013)
Bua Giovanna - The World Bank; Pradelli Juan - The
World Bank; Presbitero Andrea F. - Universit
Politecnica delle Marche

Abstract: This paper introduces a new dataset on
the stock and structure of domestic debt in 36 Low-
Income Countries over the period 1971-2011. We
characterize the recent trends regarding LICs
domestic public debt and explore the relevance of
different arguments put forward on the benefits and
costs of government borrowing in local public debt
markets. The main stylized fact emerging from the
data is the increase in domestic government debt
since 1996. We also observe that poor countries
have been able to increase the share of long-term
instruments over time and that the maturity
lengthening went together with a decrease in
borrowing costs. However, the concentration of the
investor base, mainly dominated by commercial
banks and the Central Bank, may crowd out lending
to the private sector.

Legal Issues and Conventions

Discussion Paper on CRA3 Implementation
(2013)
The European Securities and Markets Authority

Abstract: The Discussion Paper deals with the
implementation of the CRA3 Regulation, which
entered into force on 20 June 2013. The Regulation,
which complements the existing regulatory
framework for credit rating agencies (CRAs),
requires ESMA to draft Regulatory Technical
Standards (RTS) on: disclosure requirements on


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structured finance instruments (SFIs); the European
Rating Platform (ERP); and the periodic reporting on
fees charged by CRAs.

Risk Management Models

Sudden stops, time inconsistency, and the
duration of sovereign debt (2013)
Hatchondo Juan Carlos - Federal Reserve Bank of
Richmond; Martinez Leonardo - International
Monetary Fund

Abstract: In this paper we study the sovereign debt
duration chosen by the government in the context of
a standard model of sovereign default. The
government balances off increasing the duration of
its debt to mitigate rollover risk and lowering
duration to mitigate the debt dilution problem. We
present two main results. First, when the
government decides the debt duration on a
sequential basis, sudden stop risk increases the
average duration by 1 year. Second, we illustrate
the time inconsistency problem in the choice of
sovereign debt duration: governments would like to
commit to a duration that is 1.7 years shorter than
the one they choose when decisions are made
sequentially.

Conditional Euro Area Sovereign Default
Risk (2013)
Lucas Andre - VU University Amsterdam; Schwaab
Bernd - European Central Bank; Zhang Xin -
Sveriges Riksbank

Abstract: In this paper we propose an empirical
framework to assess the likelihood of joint and
conditional sovereign default from observed CDS
prices. Our model is based on a dynamic skewed-t
distribution that captures all salient features of the
data, including skewed and heavytailed changes in
the price of CDS protection against sovereign
default, as well as dynamic volatilities and
correlations that ensure that uncertainty and risk
dependence can increase in times of stress. We
apply the framework to euro area sovereign CDS
spreads during the euro area debt crisis. Our results
reveal significant time-variation in distress
dependence and spill-over effects for sovereign
default risk. We investigate market perceptions of
joint and conditional sovereign risk around
announcements of Eurosystem asset purchases
programs, and document a strong impact on joint
risk.

Sovereign risk: a world without risk-free
assets? (2013)
BIS - Bank for International Settlements

Abstract: This volume presents and summarises the
proceedings of a one-and-a-half day seminar on
sovereign risk hosted by the BIS in January 2013.
The event brought together senior central bankers,
sovereign ratings analysts, fund managers and other
market participants, sovereign legal specialists, risk
managers at financial institutions and academics.

Institutional Arrangements for Debt
Management

Voluntary Sovereign Debt Exchanges
(2013)
Hatchondo Juan Carlos - Indiana University;
Martinez Leonardo IMF

Abstract: In this paper we show that some recent
sovereign debt restructurings were characterized by
(i) the absence of missed debt payments prior to the
restructurings, (ii) reductions in the governments
debt burden, and (iii) increases in the market value
of debt claims for holders of the restructured debt.
Since both the government and its creditors are
likely to benefit from such restructurings, we label
these episodes as voluntary debt exchanges. We
present a model in which voluntary debt exchanges
can occur in equilibrium when the debt level takes
values above the one that maximizes the market
value of debt claims. In contrast to previous studies
on debt overhang, in our model opportunities for
voluntary exchanges arise because a debt reduction
implies a decline of sovereign default risk. This is
observed in the absence of any eect of debt
reductions on future output levels. Although
voluntary exchanges are Pareto improving at the
time of the restructuring, we show that eliminating
the possibility of conducting voluntary exchanges
may improve welfare from an ex-ante perspective.
Thus, our results highlight a cost of initiatives that
facilitate debt restructurings.

International lending, sovereign debt and
joint liability : an economic theory model
for amending the treaty of Lisbon (2013)
Basu Kaushik - The World Bank and Cornell
University, Ithaca, New York
Stiglitz Joseph E. - Columbia University, New York

Abstract: As the Eurozone crisis drags on, it is
evident that a part of the problem lies in the
architecture of debt and its liabilities within the
Eurozone and, more generally, the European Union.
This paper argues that a large part of the problem
can be mitigated by permitting appropriately-
structured cross-country liability for sovereign debt
incurred by individual nations within the European


4
Union. In brief, the paper makes a case for
amending the Treaty of Lisbon.

Institutional Framework

The Greek Debt Restructuring: An Autopsy
(2013)
Zettelmeyer Jeromin - European Bank for
Reconstruction and Development; Trebesch
Christoph - University of Munich; Gulati Mitu - Duke
University

Abstract: The Greek debt restructuring of 2012
stands out in the history of sovereign defaults. It
achieved very large debt relief over 50 percent of
2012 GDP with minimal financial disruption, using
a combination of new legal techniques, exceptionally
large cash incentives, and official sector pressure on
key creditors. But it did so at a cost. The timing and
design of the restructuring left money on the table
from the perspective of Greece, created a large risk
for European taxpayers, and set precedents
particularly in its very generous treatment of holdout
creditors that are likely to make future debt
restructurings in Europe more difficult.

Coordination with other Policies and
Operations

Financial Interconnectedness and
Financial Sector Reforms in the Caribbean
(2013)
Ogawa Sumiko - International Monetary Fund; Park
Joonkyu - International Monetary Fund; Singh Diva -
International Monetary Fund; Thacker Nita -
International Monetary Fund

Abstract: Financial sector linkages have increased
continuously in the Caribbean with cross border
capital flows and financial conglomerates dominating
the financial system. While the greater
interconnectedness can heighten systemic risks and
likelihood of contagion, it can have positive impacts
provided the regional authorities take steps to
prevent the systemic risk. In this context, financial
sector reform measures aimed at bolstering and
harmonizing prudential regulations in line with
international best practices, the strengthening and
enhancement of financial sector supervision to
include cross border linkages through consolidated
supervision, increased cooperation across
supervisors in the region, and the establishment of
deposit insurance and crisis resolution frameworks
will be critical to maintain financial sector stability
and minimize the repercussions of any negative
shocks.

Evaluating early warning indicators of
banking crises: Satisfying policy
requirements (2013)
Drehmann Mathias BIS; Juselius Mikael BIS

Abstract: Early warning indicators (EWIs) of
banking crises should ideally be evaluated on the
basis of their performance relative to the
macroprudential policy makers decision problem.
We translate several practical aspects of this
problem such as difficulties in assessing the costs
and benefits of various policy measures as well as
requirements for the timing and stability of EWIs
into statistical evaluation criteria. Applying the
criteria to a set of potential EWIs, we find that the
credit-to-GDP gap and a new indicator, the debt
service ratio (DSR), consistently outperform other
measures. The credit-to-GDP gap is the best
indicator at longer horizons, whereas the DSR
dominates at shorter horizons.

Political Events and Sovereign Debt
(2013)
McMenamin Iain - Dublin City University; Breen
Michael - Dublin City University; Munoz-Portillo Juan
Manuel - Dublin City University

Abstract: This paper employs an event-study
methodology to calculate the impact of 148 elections
and 542 budgets on the long-term interest rates of
nineteen countries. Both events resolve uncertainty
in markets. Elections reveal information about the
distribution of political power and budgets reveal
information about economic policy. On average both
events reduce the interest rate by a similar amount.
Very little of the variation is explained by economic
variables, even in the case of budgets. By contrast,
political constraints help explain the impact of both
elections and budgets. Consensual institutions mean
that elections do not determine the distribution of
power and that the government cannot expect its
budget proposal to be accepted virtually unamended
by parliament. Thus, political events do not tend to
reduce the interest rate in consensual countries. The
average impact of budgets and elections is very
close in all but two of our nineteen countries. Shifts
to the right in elections are rewarded with large and
sustained drops in the interest rate. However, there
is no difference in the impact of budgets presented
by right and left-wing governments and austere
budgets do not have a noticeable impact on
markets.

Japan's Challenging Debt Dynamics
(2013)
Guillemette Yvan - OECD, France; Strasky Jan -
OECD, France

Abstract: This working paper presents the
background and the details of the simulations behind
Box 1.4 of the May 2013 OECD Economic Outlook. A


5
small simulation model is used to evaluate the
contribution that the three pillars of the
governments strategy fiscal consolidation,
growth-boosting structural reforms and higher
inflation could make to reversing the rise in
Japans public debt ratio, currently about 230% of
GDP. The findings indicate that fiscal consolidation
amounting to around 10 percentage points of GDP is
necessary by 2020 to eliminate the primary deficit,
as targeted in the current medium-term fiscal
strategy. With moderately higher growth coming
from increased female labour force participation and
higher productivity growth, as well as inflation
gradually rising to 2% thanks to unconventional
monetary policy measures, the debt ratio would
likely be put on a resolute downward trajectory by
the end of this decade, although it is likely to remain
around 200% of GDP in 2035.

Relationship between the fiscal and
monetary authorities: international
experience and the Brazilian case (2013)
National Treasury - Brazil

Abstract: This document represents a contribution
to the international debate aimed at greater
dissemination of these questions among debt
managers, academics and other interested parties,
and has the objective of synthesizing Brazilian
experience, comparing it to suggestions found in
pertinent literature and to practices adopted in other
countries.

Monetary Policy

The Macroprudential Framework: Policy
Responsiveness and Institutional
Arrangements (2013)
Lim Cheng Hoon - International Monetary Fund
Krznar Ivo - International Monetary Fund; Lipinsky
Fabian - International Monetary Fund; Otani Akira -
International Monetary Fund;Wu Xiaoyong -

Abstract: This paper gauges if, and how,
institutional arrangements are correlated with the
use of macroprudential policy instruments. Using
data from 39 countries, the paper evaluates policy
response time in various types of institutional
arrangements for macroprudential policy and finds
that the macroprudential framework that gives the
central bank an important role is associated with
more timely use of macroprudential policy
instruments. Policymakers may also tend to use
macroprudential instruments more quickly if the
ability to conduct monetary policy is somehow
constrained. This finding points to the importance of
coordination between macroprudential and monetary
policy.

Risks to price stability, the zero lower
bound and forward guidance: a real-time
assessment (2013)
Coenen Gnter - European Central Bank; Warne
Anders - European Central Bank

Abstract: This paper employs stochastic simulations
of the New Area-Wide Modela micro- founded open-
economy model developed at the ECBto investigate
the consequences of the zero lower bound on nominal
interest rates for the evolution of risks to price stability
in the euro area during the recent financial crisis.
Using a formal measure of the balance of risks, which
is derived from policy-makers preferences about
inflation outcomes, we first show that downside risks
to price stability were considerably greater than upside
risks during the first half of 2009, followed by a
gradual rebalancing of these risks until mid-2011 and
a renewed deterioration thereafter. We find that the
lower bound has induced a noticeable downward bias
in the risk balance throughout our evaluation period
because of the implied amplification of deflation risks.
We then illustrate that, with nominal interest rates
close to zero, forward guidance in the form of a time-
based conditional commitment to keep interest rates
low for longer can be successful in mitigating downside
risks to price stability. However, we find that the pro-
vision of time-based forward guidance may give rise to
upside risks over the medium term if extended too far
into the future. By contrast, time-based forward
guidance complemented with a threshold condition
concerning tolerable future inflation can provide
insurance against the materialization of such upside
risks.

The Federal Reserve and Financial Regulation:
The First Hundred Years (2013)
Gorton Gary B. - Yale School of Management;
Metrick Andrew - Yale School of Management

Abstract: This paper surveys the role of the Federal
Reserve within the financial regulatory system, with
particular attention to the interaction of the Feds
role as both a supervisor and a lender-of-last-resort
(LOLR). The institutional design of the Federal
Reserve System was aimed at preventing banking
panics, primarily due to the permanent presence of
the discount window. This new system was
successful at preventing a panic in the early 1920s,
after which the Fed began to discourage the use of
the discount window and intentionally create
stigma for window borrowing policies that
contributed to the panics of the Great Depression.
The legislation of the New Deal era centralized Fed
power in the Board of Governors, and over the next
75 years the Fed expanded its role as a supervisor
of the largest banks. Nevertheless, prior to the
recent crisis the Fed had large gaps in its authority
as a supervisor and as LOLR, with the latter role
weakened further by stigma. The Fed was unable to
prevent the recent crisis, during which its LOLR
function expanded significantly. As the Fed begins


6
its second century, there are still great challenges to
fulfilling its original intention of panic prevention.

Sovereign Default Risk and Banks in a Monetary
Union
Uhlig Harald - University of Chicago
This paper seeks to understand the interplay between
banks, bank regulation, sovereign default risk and
central bank guarantees in a monetary union. I
assume that banks can use sovereign bonds for
repurchase agreements with a common central bank,
and that their sovereign partially backs up any losses,
should the banks not be able to repurchase the bonds.
I argue that regulators in risky countries have an
incentive to allow their banks to hold home risky
bonds and risk defaults, while regulators in other
safe countries will impose tighter regulation. As a
result, governments in risky countries get to borrow
more cheaply, effectively shifting the risk of some of
the potential sovereign default losses on the common
central bank.

Common Banking Supervision in the
Eurozone: Strengths and Weaknessest
(2013)
Ferrarini Guido A. - University of Genoa; Chiarella
Luigi - University of Genoa

Abstract: In this paper we analyse various instances
of supervisory centralization either implemented or
proposed in Europe in the aftermath of the financial
crisis and the sovereign debt crisis. Our central thesis
is that supervisory fragmentation is a cause of
systemic risk, as cooperation amongst national
authorities is bound to fail in crisis situations, while
the absence of common resolution mechanisms and
common deposit guarantee schemes aggravates the
costs of a banking crisis and increases the chances of
a bailout. We argue, in particular, that the current
European supervisory architecture introduced in 2010
substantially belongs to the model of enhanced
cooperation, despite including elements of the other
two models of supervisory centralization (lead
supervisor and single supervisor), and is the outcome
of a political compromise. Presently, European
supervisory authorities, including EBA, coordinate the
national ones, rather than supervising financial firms
directly. National authorities cooperate in a network
(the ESFS) under local mandates and are therefore
prone to domestic biases, particularly in crisis
situations. [...]

Should monetary policy lean against the
wind? (2013)
Gambacorta Leonardo BIS; Signoretti Federico M -
Banca dItalia

Abstract: The global financial crisis has reaffirmed
the importance of financial factors for
macroeconomic fluctuations. Recent work has shown
how the conventional pre-crisis prescription that
monetary policy should pay no attention to financial
variables over and above their effects on inflation
may no longer be valid in models that consider
frictions in financial intermediation (Curdia and
Woodford, 2009). This paper analyzes whether Taylor
rules augmented with asset prices and credit can
improve upon a standard rule in terms of
macroeconomic stabilization in a DSGE with both a
firms balance-sheet channel and a bank-lending
channel and in which the spread between lending and
policy rates endogenously depends on banks
leverage. The main result is that, even in a model in
which financial stability does not represent a
distinctive policy objective, leaning-against-the-wind
policies are desirable in the case of supply-side
shocks whenever the central bank is concerned with
output stabilization, while both strict inflation
targeting and a standard rule are less effective. The
gains are amplified if the economy is characterized
by high private sector indebtedness.

Announcements of ECB Unconventional
Programs: Implications for the Sovereign
Risk of Italy (2013)
Matteo Falagiarda University of Bologna; Stefan
Reitz - Kiel Institute for the World Economy

Abstract: This paper studies the effects of ECB
communications about unconventional monetary
policy operations on the perceived sovereign risk of
Italy over the last five years. More than fifty events
concerning non-standard operations are identified
and classified with respect to the specific ECB
program. The empirical results are derived from both
an event-study analysis and a GARCH framework,
which uses Italian long-term bond futures to
disentangle expected from unexpected policy actions.
We find that the ECB announcements about
unconventional monetary policies substantially
reduced Italian long-term government bond yield
spread relative to German counterparts. Particularly,
among the different types of measures, news about
the Securities Markets Programme and the Outright
Monetary Transactions are found to be effective in
affecting the perceived sovereign risk of Italy.

The Effectiveness of Monetary Policy since
the Onset of the Financial Crisis (2013)
Bouis Romain OECD; Rawdanowicz ukasz OECD;
Watanabe Shingo OECD; Christensen1 Ane Kathrine
OECD; Renne Jean-Paul - Banque de France

Abstract: In the wake of the Great Recession, a
massive monetary policy stimulus was provided in
the main OECD economies. It helped to stabilise
financial markets and avoid deflation. Nonetheless,
GDP growth has been sluggish and in some countries
lower than expected given the measures taken, and
estimated economic slack remains large. In this
context, this paper assesses the effectiveness of
monetary policy in recent years. It finds that


7
notwithstanding an almost full transmission of policy
interest rate cuts and unconventional policy
measures to higher asset prices and lower cost of
credit in and outside the banking sector in most
countries, with the exception of vulnerable euro area
economies, monetary policy stimulus did not show up
in stronger growth due to a combination of three
factors. First, lower policy interest rates may not
have provided as much stimulus as expected given
the evidence of a decrease in natural interest rates,
resulting from the estimated decline in potential GDP
growth in the wake of the crisis. Second, balance
sheet adjustments of non-financial companies and
households, large uncertainty as well as
simultaneous and considerable fiscal consolidation in
many OECD countries constituted important
headwinds. Third, the bank lending channel of
monetary policy transmission appears to have been
impaired, mainly due to considerable balance sheet
adjustments and prevailing uncertainty, which
together limited banks capacity and willingness to
supply credit. The paper also stresses that the
monetary accommodation risks having unintended
negative consequences which are likely to increase
with its duration.

The Benefits and Costs of Highly
Expansionary Monetary Policy (2013)
Rawdanowicz ukasz OECD; Bouis Romain OECD
Watanabe Shingo OECD

Abstract: How far to go and to remain in the
direction of highly expansionary monetary policy
hinges on the balance of marginal benefits and
costs of additional monetary easing and its
expected evolution over time. This paper sketches a
framework for assessing this balance and applies it
to four OECD economic areas: the euro area,
Japan, the United Kingdom and the United States.
The effectiveness of further stimulus via
quantitative easing or forward guidance in affecting
asset prices, interest rates and credit flows will
depend on the state of the economy and the
functioning of financial markets. Marginal costs
could rise due to excessive risk-taking; higher
inflation expectations; higher likelihood of ever-
greening; and higher risks of financial instability in
the exit phase, especially when exit from monetary
accommodation is close in time and signs of
negative effects are already apparent. The balance
of marginal benefits and costs is found to be
different across the main OECD areas. In the United
States, the case for additional stimulus is
weakening, while the opposite is true for the euro
area and Japan. In the United Kingdom, the
assessment is less clear cut.

Fiscal Policy and Budget Management

Does Fiscal Policy Affect Interest Rates?
Evidence From A Factor-Augmented Panel
(2013)
Dell'Erba Salvatore - International Monetary Fund;
Sola Sergio - International Monetary Fund

Abstract: This paper reconsiders the effects of
fiscal policy on long-term interest rates employing a
Factor Augmented Panel (FAP) to control for the
presence of common unobservable factors. We
construct a real-time dataset of macroeconomic and
fiscal variables for a panel of OECD countries for
the period 1989-2012. We find that two global
factorsthe global monetary and fiscal policy
stancesexplain more than 60 percent of the
variance in the long-term interest rates. Compared
to the estimates from models which do not account
for global factors, we find that the importance of
domestic variables in explaining long-term interest
rates is weakened. Moreover, the propagation of
global fiscal shocks is larger in economies
characterized by macroeconomic and institutional
weaknesses.

Assessing the Impact and Phasing of
Multi-year Fiscal Adjustment: A General
Frameworkl (2013)
Bi Ran - International Monetary Fund; Qu Haonan -
International Monetary Fund; Roaf James -

Abstract: This paper provides a general framework
to assess the output and debt dynamics of an
economy undertaking multi-year fiscal adjustment.
The framework allows country-specific assumptions
about the magnitude and persistence of fiscal
multipliers, hysteresis effects, and endogenous
financing costs. In addition to informing macro
projections, the framework can also shed light on
the appropriate phasing of fiscal consolidationin
particular, on whether it should be front- or back-
loaded. The framework is applied to stylized
advanced and emerging economy examples. It
suggests that for a highly-indebted economy
undertaking large multi-year fiscal consolidation,
high multipliers do not always argue against
frontloaded adjustment. The case for more gradual
or back-loaded adjustment is strongest when
hysteresis effects are in play, but it needs to be
balanced against implications for debt
sustainability. Application to actual country
examples tends to cast doubt on claims that very
large multipliers have been operating post-crisis. It
seems that the GDP forecast errors for Greece may
have been due more to over-optimism on potential
growth estimates than to underestimating fiscal
multipliers.


8
Debt and Taxes: Re-examining the Causes
of Welfare State Retrenchment (2013)
Krogslund Christopher - University of California,
Berkeley

Abstract: Why do we observe welfare state
retrenchment? While a massive literature has been
developed on the subject, there is little agreement
as to the primary drivers of retrenchment across
cases. This paper seeks to refine the literature on
welfare state retrenchment by emphasizing the role
of costly and volatile sovereign finance. It is argued
here that retrenchment occurs primarily when
states encounter constraints on new borrowing and
are unable to raise sufficient revenues to lower
market yields. In responding to a financing crisis,
policymakers will respond firstly by raising
revenues, as they can be constructed to have
diffuse costs and benefits, and will only undertake
retrenchment once all revenue raising options have
been exhausted. Analysis of a large panel data set
of unemployment insurance replacement rates for
21 advanced industrial democracies between 1980
and 2009, as well as a process tracing analysis of
the fiscal crises experienced in Argentina and Brazil
between 1997 and 2001, lend strong support to this
argument.

Long-Term Issues for Fiscal Sustainability
in Emerging Asia (2013)
Kawai Masahiro - Asian Development Bank Institute;
Morgan Peter J. - Asian Development Bank Institute

Abstract: The aftermath of the global financial
crisis of 2007-08 underlined the importance of
maintaining fiscal space and fiscal sustainability.
Even though many Asian economies implemented
fiscal stimulus policies during the crisis period, their
fiscal conditions generally improved rapidly
thereafter, and their overall government debt
positions, aside from that of Japan, appear strong.
Nonetheless, there are a number of reasons to
believe that conditions in emerging Asian
economies will not always be so supportive. The
first objective of this paper is to identify long-term
issues of fiscal sustainability risk for emerging Asian
economies. The second objective is to recommend
policies to reduce these risks to sustainability.

Public Debt Sustainability in Africa:
Building Resilience and Challenges Ahead
(2013)
Ncube Mthuli - African Development Bank; Brixiov
Zuzana - African Development Bank

Abstract: The heightened interest of African
countries to access international capital markets
has put public debt sustainability once again high
on the continents policy agenda. Applying the
stabilizing primary balance approach to
sustainability shows that the primary balances
exceeded those required to keep public debt at the
2007 level in about half of the countries studied. In
several cases with higher debt burdens, the
balances were also above those needed to reduce
public debt-to-GDP to sustainable thresholds.
However, in most countries the main driver of
sustainability has been the interest rate growth
differential (IRGD), underscoring the importance of
maintaining and even accelerating growth as well
as utilizing the borrowing space for growth-
enhancing outlays. Fiscal policies will need to play a
greater role in maintaining debt sustainability in the
future, especially since the IRGDs are likely to
narrow over the longer term.

Fiscal sustainability in Burundi: baseline
projections, stochastic simulations, and
policy scenarios (2013)
Mizuho Kida- World Bank

Abstract: The heightened interest of African
countries to access international capital markets
has put public debt sustainability once again high
on the continents policy agenda. Applying the
stabilizing primary balance approach to
sustainability shows that the primary balances
exceeded those required to keep public debt at the
2007 level in about half of the countries studied. In
several cases with higher debt burdens, the
balances were also above those needed to reduce
public debt-to-GDP to sustainable thresholds.
However, in most countries the main driver of
sustainability has been the interest rate growth
differential (IRGD), underscoring the importance of
maintaining and even accelerating growth as well
as utilizing the borrowing space for growth-
enhancing outlays. Fiscal policies will need to play a
greater role in maintaining debt sustainability in the
future, especially since the IRGDs are likely to
narrow over the longer term.

Public Debt in Macroeconomic
Analysis

Do Inflows or Outflows Dominate? Global
Implications of Capital Account
Liberalization in China (2013)
Bayoumi Tamim - International Monetary Fund;
Ohnsorge Franziska - International Monetary Fund

Abstract: This paper assesses the implications of
Chinese capital account liberalization for capital
flows. Stylized facts from capital account
liberalization in advanced and large emerging
market economies illustrate that capital account
liberalization has historically generated large gross
capital in- and outflows, but the direction of net
flows has depended on many factors. An
econometric portfolio allocation model finds that
capital controls significantly dampen cross-border


9
portfolio asset holdings. The model also suggests
that capital account liberalization in China may
trigger net portfolio outflows as large domestic
savings seek to diversify abroad.

Capital Flows are Fickle: Anytime,
Anywhere (2013)
Bluedorn John - International Monetary Fund;
Duttagupta Rupa - International Monetary Fund;
Guajardo Jaime - International Monetary Fund;
Topalova Petia - International Monetary Fund

Abstract: Has the unprecedented financial
globalization of recent years changed the behavior
of capital flows across countries? Using a newly
constructed database of gross and net capital flows
since 1980 for a sample of nearly 150 countries,
this paper finds that private capital flows are
typically volatile for all countries, advanced or
emerging, across all points in time. This holds true
across most types of flows, including bank, portfolio
debt, and equity flows. Advanced economies enjoy
a greater substitutability between types of inflows,
and complementarity between gross inflows and
outflows, than do emerging markets, which reduces
the volatility of their total net inflows despite higher
volatility of the components. Capital flows also
exhibit low persistence, across all economies and
across most types of flows. Inflows tend to rise
temporarily when global financing conditions are
relatively easy. These findings suggest that fickle
capital flows are an unavoidable fact of life to which
policymakers across all countries need to continue
to manage and adapt.

The Evolution of Current Account Deficits
in the Euro Area Periphery and the Baltics:
Many Paths to the Same Endpoint (2013)
Kang Joong Shik - International Monetary Fund;
Shambaugh Jay C. - George Washington University

Abstract: Explanations of the large current account
deficits for the euro area periphery and the Baltics
in the run up to the crisis revolve around two main
factors: deteriorating export performance or
demand driven booms. We add that there were
important movements in transfers and net income
balances. While export performance remained
relatively stable in most countries, for some
countries, when transfers declined, households and
firms borrowed so as to maintain the same level of
spending. This was part of a persistent failure to
adjust to trade deficits, which, along with rising net
income payments, led to growing current account
deficits. All of these factors played varying roles in
the development of current account deficits across
these countries.

Foreign and Public Deficits in Greece: In
Search of Causality (2013)
Nikiforos Michalis - Levy Economics Institute of Bard
College; Carvalho Laura - So Paulo School of
EconomicsFGV; Schoder Christian - Macroeconomic
Policy Institute (IMK)

Abstract: The paper discusses the trajectories of
the Greek public deficit and sovereign debt over the
last three decades and its connection to the political
and economic environment of the same period. We
pay special attention to the causality between the
public and the foreign deficit. We argue that from
1980 to 1995 causality ran from the public deficit to
the foreign deficit, but that due to the European
monetary unification process and the adoption of
the common currency, causality has reversed since.
This hypothesis is tested and verified
econometrically using both Granger Causality and
Co-Integration analyses.

Measuring contagion potential among
sovereigns and banks using a mixed-
cross-section GVAR (2013)
Gross Marco - European Central Bank; Kok
Christoffer - European Central Bank

Abstract: This paper aims to illustrate how a
Mixed-Cross-Section Global Vector Autoregressive
(MCS-GVAR) model can be set up and solved for
the purpose of forecasting and scenario simulation.
The application involves two cross-sections:
sovereigns and banks for which we model their
credit default swap spreads. Our MCS-GVAR
comprises 23 sovereigns and 41 international banks
from Europe, the US and Japan. The model is used
to conduct systematic shock simulations and
thereby compute a measure of spill-over potential
for within and across the group of sovereigns and
banks. The results point to a number of salient
facts: i) Spill-over potential in the CDS market was
particularly pronounced in 2008 and more recently
in 2011-12; ii) while in 2008 contagion primarily
went from banks to sovereigns, the direction
reversed in 2011-12 in the course of the sovereign
debt crisis; iii) the index of spill-over potential
suggests that the system of banks and sovereigns
has become more densely connected over time.
Should large shocks of size similar to those
experienced in the early phase of the crisis hit the
system in 2011/2012, considerably more
pronounced and more synchronized adverse
responses across banks and sovereigns would have
to be expected.


10
Macroeconomic imbalances: a question of
trust? (2013)
Btzer Sascha - Ludwig-Maximilians-University
Munich; Jordan Christina - European Commission;
Stracca Livio - European Central Bank

Abstract: In this paper, we address the question of
whether cross-country differences in civic capital,
notably interpersonal trust, have contributed to the
build-up of macroeconomic imbalances over the last
three decades. We analyze the link between a
stylized index of economic imbalances (a
combination of the government budget balance, the
inflation rate and the current account balance) and
interpersonal trust, alongside other measures of
civic and cultural capital, obtained from value
survey data for 65 advanced and emerging
countries. For the whole set of countries, we find
robust empirical evidence for a negative and
significant relationship between trust and
macroeconomic imbalances which may therefore
partly reflect underlying heterogeneity in civic
capital. Within the euro area, differences in trust
exist although they are not particularly large from
an international perspective. With the nexus
between trust and macroeconomic imbalances
being equally robust we can attribute one fifth of
the variation in intra-euro area imbalances to
differences in interpersonal trust. Euro area
membership and EU fiscal rules do not appear to
have weakened the link between the two variables.

The global effects of the euro debt crisis
(2013)
Stracca Livio - European Central Bank

Abstract: This paper is an event study focusing on
the global effects of the euro debt crisis in 2010-
2013. After identifying 18 key exogenous crisis
events, I analyze the impact on equity returns,
exchange rates and government bond yields in 12
advanced and 13 emerging countries. The main
effect of euro debt crisis events is a rise in global
risk aversion accompanied by fall in equity returns,
in particular in the financial sector, in advanced
countries (but not in emerging countries). The
effect on bond yields is not statistically significant
for the whole set of countries, but is significant and
negative for key advanced countries such as the US
and the UK. The paper also analyze the
transmission channels by looking at how pre-crisis
country characteristics influence the strength and
direction of the spill-over, concluding that the
transmission hinges more on trade than on finance.

Sovereign Defaults, Business Cycles and
Economic Growth in Latin America, 1870-
2012 (2013)
Boonman Tjeerd M. - University of Groningen

Abstract: Sovereign debt crises have regained
attention since the recent crises in several
European countries. This paper focuses on a
particular aspect of the debt crisis literature: the
impact of sovereign default on economic growth.
Previous research agrees on the negative impact,
but not on size and duration. We are particularly
interested in the heterogeneity of crisis impacts:
Why are some crises deeper and longer than
others? And what is the role of business cycles?
[...]

Public Debt, Economic Growth and Non-
Linear Effects: Myth or Reality? (2013)
gert Balzs - OECD

Abstract: This paper puts the Reinhart-Rogoff
data-set to a formal econometric testing to see
whether public debt has a negative non-linear effect
on growth if public debt exceeds 90% of GDP. Using
non-linear threshold models, we show that the
negative non-linear relationship between debt and
growth is very sensitive to modelling choices. We
also show that when non-linearity is detected, the
negative non-linear effect kicks in at much lower
levels of public debt (between 20% and 60% of
GDP). These results, based on bi-variate
regressions on secular time series, are confirmed
on a shorter data-set (1960-2010) using a
multivariate growth framework.

The Fiscal Cliff: Is U.S. Fiscal Policy
Sustainable? (2013)
Nguyen Dat Thanh - La Trobe University; Suardi
Sandy - La Trobe University

Abstract: The U.S. fiscal cliff has sparked renewed
interest on the issue of fiscal sustainability. Using a
time-varying parameter model with a longer data
set (1916-2011), there is evidence that the
response of primary surplus-income ratio to debt-
GDP ratio shows (1) substantial variation over time,
(2) the fiscal debt has become unsustainable since
2005 when primary surpluses have responded
negatively to debt-income ratio, and (3) the lack of
sustainability in fiscal policy continues through the
subprime and global financial crises when huge
liabilities were passed to the government from the
financial sector.

The 90% Public Debt Threshold: The Rise
& Fall of a Stylised Fact (2013)
gert Balzs OECD

Abstract: This paper analyses the original
Reinhart-Rogoff dataset, made public by Herndon et
al. (2013), on the basis of descriptive statistics and
formal econometric testing. First, based on the
public debt thresholds (30%, 60% and 90%)
proposed by Reinhart and Rogoff (2010),


11
descriptive statistics reveal that real GDP growth
slows considerably as the central government debt-
to-GDP ratio goes beyond the 30% threshold and
that no further slowdown can be observed in the
data as the debt-to-GDP ratio rises above 60% and
90% during the periods 1790-2009 and 1946-2009.
For the United States (1946-2009), the negative
nonlinear finding completely disappears for any
level of public debt, once reverse causality and
influential outliers are accounted for. Looking at
general (and central) government debt during the
more recent period of 1960-2009 suggests that
economic slowdown occurs when public debt moves
above 60% or 90% of GDP. But it seems more
appropriate to determine nonlinearity and the
associated debt threshold endogenously. [...]

Crises and Government: Some Empirical
Evidence (2013)
Bologna Jamie - West Virginia University; Young
Andrew T. - West Virginia University

Abstract: In this paper we examine a panel of 70
countries during 1966-2010 and utilize Reinhart
and Rogoff crisis dates to estimate the effects of
crises on the size and scope of government over
both 5-year and 10-year horizons. We also estimate
cross section regressions using 40-year (1970-
2010) changes in government variables.
Governance institutions appear persistent to the
extent that even crisis episodes fail to leave a
significant mark upon them. However, crises do
appear to be associated with increases in countries
freedom to trade internationally. Also, over 30-year
periods, more years spent in crisis are associated
with weaker legal systems and property rights.

Banks, Government Bonds, and Default:
What Do the Data Say? (2013)
Gennaioli Nicola - Bocconi University; Martin Alberto
- Universitat Pompeu Fabra; Rossi Stefano - Purdue
University

Abstract: In this paper we use data from
Bankscope to analyze the holdings of public bonds
by over 18,000 banks located in 185 countries and
the role of these bonds in 18 sovereign debt crises
over the period 19982012. We find that: (i) banks
hold a sizeable share of their assets in government
bonds (about 9% on average), particularly in less
financially developed countries; (ii) during
sovereign crises, banks on average increase their
bondholdings by 1% of their assets, but this
increase is concentrated among larger and more
profitable banks, and; (iii) the correlation between
a banks holdings of public bonds and its future
loans is positive in normal times, but turns negative
during defaults. A 10% increase in bank bond-
holdings during default is associated with a 3.2%
reduction in future loans, and bonds bought in
normal times account for 75% of this effect. Our
results are consistent with the view that there is a
liquidity benefit for banks to hold public bonds in
normal times, which is critical for understanding
bank fragility during sovereign crises.

Articles in reviews

Active Debt Management

Credit Default Swaps, Contract Theory,
Public Debt, and Fiat Money Regimes:
Comment on Polleit and Mariano (2013)
Mra Xavier - PhD candidate in economics at the
University of Angers

Abstract: In their paper Credit Default Swaps from
the Viewpoint of Libertarian Property Rights and
Contract Theory, Thorsten Polleit and Jonathan
Mariano attempt to show that credit default swaps
(CDS) are legitimate and enforceable contracts
under Murray Rothbards conception of property
rights and contract theories. They also try to
demonstrate that CDS are an efficient and effective
instrument for putting an end to ever higher debt
accumulation under fiat money regimes, and that
CDS (if not suppressed by government) put a limit
to, or even erode, the viability of fiat money
regimes. These propositions are supposed to
explain why governments are interested in
restricting or banning them.


12
Books
Monetary Policy

The Eurosystem collateral framework
throughout the crisis (2013)
European Central Bank - European Central Bank

Abstract: The global financial crisis has been a
driver of change in most, if not all, areas of the
financial world and thus has also called for
Eurosystem policy responses in the context of its
collateral framework. During the various phases of
the ongoing financial crisis, the Eurosystem has
drawn on the flexibility of its collateral framework,
either by means of temporary measures or by
implementing changes to the standard Eurosystem
collateral framework, in order to avoid widespread
collateral constraints in its continued efforts to
support bank lending and liquidity in the euro area
money market. This article reviews the ways in
which Eurosystem collateral policies have been
changed on several occasions as a direct
consequence of the crisis in order to address and
mitigate market malfunctions in a timely manner,
but also in response to modifications to the
Eurosystem risk control framework, echoing, to
some extent, the lessons learned during the financial
crisis. Moreover, this article illustrates the ways in
which the ECBs actions have affected developments
in the size and composition of Eurosystem collateral
in terms of both eligible and used assets.

Public Debt in Macroeconomic
Analysis

Rollover Risk: Ideating a U.S. Debt Default
(2013)
Schwarcz Steven L. - Duke University School of Law

Abstract: This article examines how a U.S. debt
default might occur, how it could be avoided, its
potential consequences if not avoided, and how
those consequences could be mitigated. To that end,
the article differentiates defaults caused by
insolvency from defaults caused by illiquidity. The
latter, which are potentiated by rollover risk (the
risk that the government will be temporarily unable
to borrow sufficient funds to repay its maturing
debt), are not only plausible but have occurred in
the past. Moreover, the ongoing controversy over
the federal debt ceiling and the rise of the shadow-
banking system make these types of defaults even
more likely today. The article also examines how a
U.S. debt default could be avoided, discussing steps
including netizing debt and printing money to pay
maturing debt that the government could take to
facilitate debt repayment, as well as limits on the
governments ability to avoid defaulting. The article
then examines the consequences of a U.S. debt
default, demonstrating that even a temporary
default caused by illiquidity would have severe
economic and systemic consequences, significantly
raising the cost of borrowing and causing securities
markets to plummet. Such a default would also raise
a host of legal issues, including constitutional
questions of first impression under the Fourteenth
Amendment. Finally, the article explores how the
negative consequences of a default might be
mitigated, potentially through a debt restructuring
or even a possible IMF bailout.

Moral Categories in the Financial Crisis
(2013)
Fourcade Marion - University of California; Steiner
Philippe - University of Paris-Sorbonne; Streeck
Wolfgang - Max Planck Institute for the Study of
Societies; Woll Cornelia - Sciences Po Paris

Abstract: Karl Marx observed long ago that all
economic struggles invite moral struggles, or
masquerade as such. The reverse may be true as
well: deep moral-political conflicts may be waged
through the manipulation of economic resources.
Using the recent financial and Eurozone crises as
empirical backgrounds, the four papers gathered
here propose four different perspectives on the play
of moral judgments in the economy, and call for
broader and more systematic scholarly engagement
with this issue. Focusing on executive compensation,
bank bailouts, and the sovereign debt crisis, the
symposium builds on a roundtable discussion held at
the opening of the Max Planck Sciences Po Center on
Coping with Instability in Market Societies (MaxPo)
in Paris on November 29, 2012..

Coordination with other policies

Public Sector Debt in the Caribbean: An
Agenda for Reduction and Sustainability
(2013) downloadable!
Caribbean Growth Forum CGF - Caribbean
Growth Forum

Summary: Since the late 1990s, with
comparatively low and stable inflation, relative
political stability and the deepening of local and


13
regional financial markets, Caribbean
governments have largely had easy access to
financial resources. Increased access to
international capital markets and deepening
domestic financial markets encouraged
international and domestic borrowing and led to a
virtual doubling of average national
public debt in the Region since the mid-1990s.
This steady debt accumulation has placed
Caribbean countries among the most highly
indebted middle-income countries in the world.
At the end of 2010,1/6th of the 10 most highly
indebted countries were from the Caribbean,
while four countries St. Kitts and Nevis,
Jamaica, Barbados and Grenada ranked among
the top five. All six countries had public debt
levels in excess of 80 percent (%) of Gross
Domestic Product (GDP).[...]

Economic Development and Islamic
Finance (2013)
Iqbal Zamir - World Bank; Mirakhor Abbas -
International Centre for Education in Islamic
Finance

Summary: This volume attempts to highlight
some of the key features of Islamic finance
relevant to economic development. The objective
of the volume is to improve understanding of the
perspective of Islamic finance on economic
development, social and economic justice, human
welfare, and economic growth.

Web Resources

Core Topics in Debt Management
Challenges in developing a successful bond market in Kenya
BIS
Remarks by Prof Njuguna Ndungu, Governor of the Central Bank of Kenya, at the Market Leaders Forum
dinner, Nairobi, 6 August 2013.

Primary Market

The Role Of Credit Rating Agencies In The Financial System
Standard & Poor's Financial Services LLC
Editor's note: On Sept. 10, 2013, Standard & Poor's Ratings Services President Douglas L. Peterson participated
in a United Nations thematic debate. The speech he delivered touched on the important role ratings play in the
global capital markets and the changes that have occurred since the financial crisis. Participants also considered
competition among credit rating agencies, the role of regulators, and the merits of particular regulatory
proposals.

Multilateral Debt

Burkina Faso: Sixth Review Under the Three-Year Arrangement Under the Extended Credit [..] - IMF
Country Report No. 13/235
The staff report for the Sixth Review Under prepared by a staff team of the IMF, following discussions that
ended on May 8, 2013 [....]


14
Iceland: 2013 Article IV Consultations and Third Post-Program Monitoring Discussions - IMF
Country Report No. 13/256
This paper is the for the periodic consultation with the member country []

Taking Advantage of a Fast-Growing Economy to End Extreme Poverty, Boost Shared Prosperity
World Bank
Building on information outlined in the Sierra Leone Growth Pole Diagnostic, a recently-released World Bank
report, the government plans to leverage the countrys existing opportunities in mining, agriculture and tourism
to create jobs in impoverished communities across the country. []

Legal Issues and Conventions

Forging the (Ir)Responsible Sovereign Creditor: The Modern Sovereign Debt Paradigm &
Possibilities of Absolute Responsibility
Ariel Ricker, William Mitchell College of Law
This recently completed thesis provides an overview of the historical and current trends in international debt
crises, especially concerning sovereign borrowing and lending practices. Particular attention is given to the rise
of litigious vulture funds, as well as the possibilities of developing philosophical and practical creditor/debtor
practices.

FSI Survey Basel II, 2.5 and III Implementation
BIS
The Financial Stability Institute (FSI) has previously conducted surveys on subjects of supervisory interest and
shared the findings with the supervisory community. The FSI conducted a survey on Basel II implementation in
2004, which was followed by updates in 2006, 2008 and 2010.[...]

Report to G20 Leaders on monitoring implementation of Basel III regulatory reforms
BIS
Report to G20 Leaders on monitoring implementation of Basel III regulatory reforms This is the fourth report
from the Basel Committee on Banking Supervision1 to update G20 Leaders on progress in implementing the
Basel III regulatory reforms. The last update was issued in April 2013.[...]

Active Debt Management
Avoiding the "Resource Curse" in Mongolia
Peterson Institute for International Economics
Located in north central Asia, Mongolia is on the verge of an economic boom as foreign investors extract and
exploit its rich deposits of natural resources, among them copper, gold, and coal. But the onset of a mining
boom in Mongolia has also generated widespread concerns about the potential damage to traditional agriculture
and the environment, the lack of infrastructure and water resources, and the dangers of increased economic
inequality, inflation, fiscal instability, corruption, and lack of transparency. The reelection of President
Tsakhiagiin Elbegdorj on June 26, 2013, provides an opportunity to reassess how the country has fared in
dealing with the mining boom and identify the best policy options to avoid the "resource curse."

Risk Management Models

Risk Assessment of the European Banking System
EBA July 2013
The EBA semi-annual report on risks and vulnerabilities analyses the main developments and trends affecting
the EU banking sector in the first semester of 2013. The report provides an outlook of the main micro-
prudential risks and vulnerabilities as well as of its related policy implications. Moreover, it puts forward
possible measures for addressing these risks through coordinated policy and supervisory actions.


15
Derivatives

Andreas Dombret: Global derivatives markets in transition
BIS
Guest contribution by Dr Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank,
published in the Brsen-Zeitung on 2 August 2013.

Macroeconomic impact assessment of OTC derivatives regulatory reforms
BIS
In its report, the MAGD focuses on the effects of (i) mandatory central clearing of standardised OTC derivatives,
(ii) margin requirements for non-centrally-cleared OTC derivatives and (iii) bank capital requirements for
derivatives-related exposures.

ISDA In Review - August 31, 2013
ISDA
ISDA in Review is a monthly compendium of links to new documents, research papers, press releases and
comment letters from the Association. It is emailed at the close of each month to members, as a benefit of
enrollment.

2003 ISDA Credit Derivatives Definitions Note on Implementation Timing Proposal and Key
Changes Products
Isda
This note has been prepared by a working group under ISDAs Credit Steering Committee to provide guidance
on proposed timing for implementation of a revised version of ISDAs Credit Derivatives Definitions and a high
level description of key areas where the working group anticipates proposing changes to those Definitions.[...]

Institutional Arrangements for Debt Management

Sovereign debt and its restructuring framework in the euro area
Bruegel Group
by Ashoka Mody: To compensate for the inflexibility of fixed exchange rates, the euro area needs flexibility
through a system of orderly debt restructuring. With virtually no room for macroeconomic manoeuvring since
the crisis onset, fiscal austerity has been the main instrument for achieving reductions in public debt levels; but
because austerity also weakens growth, public debt ratios have barely budged. Austerity has also implied
continued high private debt ratios. And these debt burdens have perpetuated economic stasis.

DMOs Programmes and Reports

DMO Annual Review 2012-13
UK Debt Management Office
Global activity in the financial year was characterised by contraction in the euro area, particularly in the
peripheral countries, and slower growth in a number of emerging economies. Activity in the United States was
relatively strong but fiscal tightening was seen as having the potential to drag on future growth.

Central government finance and debt, July 2013
Denmarks National Bank
Danmarks Nationalbank publishes monthly statistics for the central-government financing requirement and
debt.

Annual Public Debt Report 2011 2012
Kenia Ministry of Finance
The Public Debt Report is an annual publication of the Ministry of Finance. []

Annual Report and Accounts 2012-2013
UK Debt Management Office
This document presents the Annual Report and Accounts of the United Kingdom Debt Management
Office (DMO) and the Annual Report and Accounts of the Debt Management Account (DMA) for the year
ended 31 March 2013.


16
NTMA Annual Report 2012
Ireland National Treasury Management Agency
This document presents the Annual Report and Accounts for the year ended.

NTMA presentation for institutional investors, July 2012
Ireland National Treasury Management Agency
The National Treasury Management Agency has published the most recent version of its presentation for
institutional investors.

Monthly bulletin n 279 August 2013
Agence France Trsor
The Monthly Bulletin covers the following topics: Debt general data, Primary market, Secondary market, News
brief, The French economy, International comparisons, French Government negotiable debt outstanding.

Monthly bulletin n 278 July 2013
Agence France Trsor
The Monthly Bulletin covers the following topics: Debt general data, Primary market, Secondary market, News
brief, The French economy, International comparisons, French Government negotiable debt outstanding.

Market Information & Special report in August 2013
Iceland National Debt Management Agency
This issue of Market Information includes a special report on developments in non-resident investors Treasury
bond holdings. []

Government Debt Management Unit Quarterly Report
Israeli Ministry of Finance
This document presents Government Debt Management Unit Quarterly Report

Public Finance Annual Review, 2012
Lebanon Ministry of Finance
This document presents Public Finance Tables []

Coordination with other policies

Republic of Serbia: 2013 Article IV Consultation - IMF Country Report No. 13/206

Tonga: 2013 Article IV Consultation - IMF Country Report No. 13/234

Euro Area Policies: 2013 Article IV Consultation - IMF Country Report No. 13/231

Georgia: 2013 Article IV Consultation - IMF Country Report No. 13/264

Republic of Moldova: Poverty Reduction Strategy Paper-Joint Staff Advisory Note - IMF Country
Report No. 13/270
This report on Moldova was prepared jointly by the staffs of the Fund and the International Development
Association, on the poverty reduction strategy paper for Republic of Moldova. It is based on the information
available at the time it was completed on August 1, 2013. [...]

Czech Republic: 2013 Article IV Consultation - IMF Country Report No. 13/242


17
Ardian Fullani: Overview of Albanias recent economic and financial market developments
BIS
Speech by Mr Ardian Fullani, Governor of the Bank of Albania, at the Press Conference on the Monetary Policy
Decision of Bank of Albanias Supervisory Council, Tirana, 31 July 2013.

Japan: 2013 Article IV Consultation - IMF Country Report No. 13/253

United Arab Emirates: 2013 Article IV Consultation - IMF Country Report No. 13/239

United Arab Emirates: Selected Issues - IMF Country Report No. 13/240
This paper on the United Arab Emirates was prepared by a staff team of the International Monetary Fund as
background documentation for the periodic consultation with the member country. It is based on the
information available at the time it was completed on June 27, 2013. [...]

United States: 2013 Article IV Consultation - IMF Country Report No. 13/236

The Republic of Yemen: 2013 Article IV Consultation - IMF Country Report No.13/246

Spain: 2013 Article IV Consultation - IMF Country Report No. 13/244

Slovak Republic: 2013 Article IV Consultation - IMF Country Report No. 13/262

Longevity risk transfer markets: market structure, growth drivers and impediments, and potential
risks
BIS
The ageing population phenomenon being observed in many countries poses serious social policy and
regulatory/supervisory challenges. Not only are people living longer, but longevity risk the risk of paying out
on pensions and annuities longer than anticipated is also becoming more of a concern in terms of
sustainability of existing saving for retirement products.[...]

Progress on Sovereign Wealth Fund Transparency and
Peterson Institute for International Economics
Economists and the financial world have grown increasingly excited about or alarmed by the growing influence
of sovereign wealth funds (SWFs), though in recent years the public debate about their role has subsided.
Politicians in countries in which the funds invested have generally welcomed the additional financial resources
from abroad while expressing concern about the motivations of investors and possible threats to political,
economic, and financial security. Countries in which the funds were based have wanted to know more about
how their national wealth is invested. Responding to these concerns, authorities and managers responsible for
SWFs in many countries have taken steps to demystify the funds. This update on the transparency and
accountability of SWFs, based on the SWF scoreboard first developed by Truman in 2007, finds that many of
the funds have made substantial progress in providing more information about and accountability for their
activities, but that the progress has not been uniform and more is needed.

Monetary Policy

Charles Bean: Global aspects of unconventional monetary policies
BIS
Panel remarks by Mr Charles Bean, Deputy Governor for Monetary Policy of the Bank of England, at the Federal
Reserve Bank of Kansas City Economic Policy Symposium, Jackson Hole, Wyoming, 24 August 2013.


18

Kerstin af Jochnick: Monetary policy and the current economic situation
BIS
Speech by Ms Kerstin af Jochnick, First Deputy Governor of the Sveriges Riksbank, to the County Administrative
Board, Kalmar, 22 August 2013.

Haruhiko Kuroda: Japans unconventional monetary policy and initiatives toward ensuring stability
of the global financial system
BIS
Remarks by Mr Haruhiko Kuroda, Governor of the Bank of Japan, at the Federal Reserve Bank of Kansas City
Economic Policy Symposium, Jackson Hole, Wyoming, 24 August.

To end the Eurozone crisis, bury the debt forever
VOX
The Eurozones debt crisis is getting worse despite appearances to the contrary. How can we end it? This
column presents five major options for reducing crisis countries debt. Looking into the details, it seems the
only option that is both realistic and effective is for countries to default by selling monetised debt to the ECB.
Moral hazard aside, burying the debt seems to be the only way we can end the crisis.

Forward guidance and the ECB
VOX
The ECB recently changed its monetary policy communication strategy to include a form of forward guidance.
This column, written by ECB Executive Board Member Peter Praet, explains the new thinking and argues that it
has contributed to more clarity over the ECBs assessment of the outlook and its reaction function as well as
helping to stabilise money-market conditions and anchor expectations more firmly.

Fiscal policy and budget management

Ireland: Fiscal Transparency Assessment - IMF Country Report No. 13/209
This pilot Fiscal Transparency Assessment for Ireland was prepared by a staff team of the International
Monetary Fund as background documentation for the periodic consultation with the member country. [...]

Removing deadweight loss from economic discourse on income taxation and public spending
VOX
Economists usually think of taxation as inefficient. This column argues that the anti-tax rhetoric evident in
much lay discussion of public policy draws considerable support from the prevalent negative language of
professional economic discourse. Optimal income taxation doesnt have to employ the pejorative concepts of
inefficiency, deadweight loss and distortion; and this column argues that it is high time for economists to
discard them and make analysis of taxation and public spending distortion-free.

Public Debt in Macroeconomic Analysis

East Africa Quarterly Bulletin, Second Quarter 2013
African Development Bank
Economic growth in the countries covered by this review was modest to strong during Q2 2013 and was driven
by diverse factors. In Uganda, real GDP growth at 5.1% in June 2013 was slightly below the projected 5.4% for
the same period and was driven by a recovery in industry and services. [...]

Africa and Global Economic Trends, Quarterly Statistical Review
After a weak ending to the year 2012, the global economy picked up during the first months of 2013, driven by
resilience in emerging economies. [...]

Impact on Asian bond markets from tighter US monetary policy
Asian Bonds Online
The region has witnessed an outflow of funds following the remarks of United States (US) Federal Reserve
Chairman Ben Bernanke on 19 June that US monetary policy could soon be tightened. Assuming that economic
conditions do not worsen, the Federal Reserve could start tapering its quantitative easing program toward the
end of the year and end its asset purchases by the middle of 2014.


19

Southern Africa Quarterly Overview and Analysis, Second Quarter
Economic activity in Southern Africa remained quite strong in the second quarter, giving optimism that the
region is on course to attain a projected annual average growth rate of 4.4 percent. [...]

Debt, global liquidity and the challenges of exit -Jaime Caruana, General Manager, Bank for
International Settlements
BIS
8th FLAR-CAF International Conference on External liquidity, economic policy and macroeconomic stability in
the emerging and developing world - Cartagena, Colombia, 8 July 2013.

Andreas Dombret: The European sovereign debt crisis past, present and future
BIS
Speech by Dr Andreas Dombret, Member of the Executive Board of the Deutsche Bundesbank, to participants of
the GMAP of Fletcher School, Berlin, 26 August 2013..

Network News

From January 2011 the Network News section is present also in the Public
area of the Networks website. The Partners can find daily news (11.100 items
inserted by the Secretariat since January 2011) extracted from best online
newspapers and info providers and classified by geographical areas.

Annual Reports & Guidelines go to the Information Corner on
www.publicdebtnet.org

Events and Courses

Newly uploaded

17 - 20 September 2013 - Christs College, Cambridge,
UK
Risk Management for Central Banks

UK
New Challenges in Financial Regulation and
Supervision

UK
The Changing Framework of Monetary Policy
Operations

UK
Communications and External Relations for Central
Banks

18 - 20 September 2013 - Paris, France
Global Master Agreements for Repo and Securities
Lending Workshop

25 - 26 September 2013 Singapore
The 4th Pan-Asian Regulatory Summit

3 October 26 November 2013 - e-course
Municipal Finances - A Learning Program for Local
Governments

7 October 8 November 2013 - web-based
Essentials of Banking Regulation and Basel III

17 October 2013 - New York Marriott Marquis
Market Structure Conference

21 - 24 October 2013 - JW Marriott Hotel Hong Kong
RiskMinds Asia

22 October 2013 - Singapore - Fullerton Hotel, 1
Fullerton Square
EMTA Forums in Asia - Hosted by ING Commercial
Bank


20
22 - 30 October 2013 - Abu Dhabi
4th Annual Middle-East Symposium 29 & 30
October 2013, Abu Dhabi

14 October 22 November 2013 - web-based
Basic Course on Public Debt Management (2013)

11 12 November 2013 - Marriott Marquis, New York
SIFMA Annual Meeting 2013

11 15 November 2013 - Palais des Nations ,Geneva
Ninth International Debt Management Conference

1 29 April 2014 - web-based
Debt Management Performance Assessment
(DeMPA) Training

Previously signaled

1 October 2013 - German National Library, Adickesallee
1, 60322 Frankfurt am Main Germany
The 6th Annual bwf and ICMA Capital Markets
Conference

02 October 2013 - Ljubljana Slovenia
Policy Coordination in Promoting Financial
Stability

11 -12 October 2013 - Ronald Reagan Building and
International Trade Center in Washington, D.C.
2013 IIF Annual Membership Meeting (AMM)

17 -18 October 2013 - Slovenia, Ljubljana, Cankarjeva
18, CEF
Latest Developments in Prudential Regulation and
Supervision (Basel III and CRD IV)

07 November 2013 - Hosted by Central Bank of the
Republic of Turkey - The Marmara Hotel - Istanbul,
Turkey
Understanding the Mechanisms and Effects of New
Policy Instruments

1 January 2014 - web-based
Effective Public Debt Management

1 January 2014 - web-based
Fundamentals of the Financial System (2013)

Communication Corner

At the link below, Partners can find details on the Serbia and Bangladesh study visits
held on June and July 2013 at the Italian Ministry of Economy and Finance premises.

http://www.publicdebtnet.org/public/MoreAboutUs/Study/

REMINDER

e-LEARNING COURSE MATERIALS
The PDM network website hosts materials from e-learning course ADVANCED RISK
MANAGEMENT organized by UNITAR thanks to Enrique Cosio-Pascal contribution.
The four modules course is downloadable from the Reserved Area of the website in the Section
Learning Area. This course is oriented toward those economists and financial specialists that
would be dealing with financial risk management issues.

Some figures

On 19 September 2013, the number of total resources of the PDM Network website is
15.913 (of which 11.867 news, 1.801 papers and 1.445 webresources). The Partners are
715, coming from 110 countries. 371 Partners belong to sovereign debt management
institutions of emerging and advanced countries. This newsletter is sent to 554 Partners.


21

Participating Institutions in the PDM Network

OECD
Australian OFM, Austrian DMA, Belgian DMA, Belgian Central Bank, Canadian Foreign Affairs and International Trade,
Canadian Government, Chilean Central Bank, Chilean MOF, Czech Central Bank, Czech Mof, Danish DMO, Danish Central
Bank, Danish Mof, Dutch Central Bank, Dutch DMA, Dutch MoF, Finnish Treasury, Finnish MoF, French Central Bank, French
DMA, French MoF, German Central Bank, German MoF, German Finance Agency, Greek DMA, Greek MoF, Greek Central
Bank, Hungarian DMA, Hungarian MoF, Hungarian National Bank, Icelandic DMA, Irish NTMA, Irish MoF, Israeli MoF, Israeli
Central Bank, Italian Development Co-operation Office, Italian Ministry of Foreign Affairs, Italian MoF, Italian Senate,
Japanese MoF, Japanese Central Bank, Luxembourg Mof, Mexican MoF, New Zealander DMO, Norwegian MoF, Polish MoF,
Polish Central Bank, Portuguese Central Bank, Portuguese DMA, Slovak MoF, Slovak DMA, Slovenian MoF, Spanish Central
Bank, Spanish MoF, Swedish DMO, Swedish Mof, Swiss State Secretary for Economic Affairs SECO, Turkish Treasury, US
GAO, US Treasury, UK Central Bank, UK DMO, UK Treasury.

Non-OECD
Afghan Mof, Albanian Mof, Angolan National Bank, argentine Central Bank, Argentine MoF, Bangladeshi MoF,The Audit Board
of The Republic of Indonesia, Autonomous Sinking Fund of Cameroon, Barbados Central Bank, Bosnia and Herzegovina
Federal Ministry of Finance, Brazilian Central Bank, Brazilian MoF, Bulgarian MoF, Chinese MoF, Colombian MHCP, Cypriot
Central Bank, Cypriot MoF, Dubai Government, Dubai MoF, Eastern Caribbean Central Bank, Egyptian MoF, Estonian MoF,
Ethiopian MoF, Fiji MoF, Georgian Mof, Ghanaian Central Bank, Ghanaian MoF, Hong Kong Monetary Auth., Indian Reserve
Bank, Indian NIPF, Indonesian Central Bank, Jordanian Central bank, Kenyan Central Bank, Kenyan MoF, , Latvian DMO,
Lebanese MoF, Lesotho Central Bank, Lesotho MoF, Lithuanian MoF, Republic of Macedonia MoF, Malawian Reserve Bank,
Maldives MoF, Maltese Treasury, Maltese Central Bank, Mauritius Ministry of Finance and Economic Development, Moldovan
MoF, Moldovan Court of Accounts, Moroccan MoF, Mozambique Ministry of finance, National Analytical Centre of the
Government of Kazakhstan, Nicaraguans Ministry of Finance and Public Credit, Nigerian DMO, State Bank of Pakistan,
Pakistani MoF, Papua New Guinean Treasury, Paraguayan Ministry of Finance, Philippine Bureau of the Treasury, Romanian
MoF, Romanian Central Bank, Romanian Court of Accounts, Rwandan MoF, Sain Kitts & Nevis MoF, Santa Lucia Ministry of
Finance Economic Affairs and National Development, Serbian Mof, Singaporean MoF, Solomon Island Central Bank, Solomon
Islands MoF, South African National Treasury, South Korean MoF, Bank Of Korea, Sri Lanka Central Bank, Swaziland's MoF,
Tanzanian MoF, Thai Central Bank, Thai Mof, The People's Bank of China, Ugandan Central Bank, United Arab Emirates MoF
and Central Bank, Uruguayan MoF, Vietnamese Mof, Zimbabwean DMO.

Multilateral Institutions
ADB-Asian Development Bank, African Development Bank Group, African Forum and Network on Debt and Development
(Afrodad), Asian Development Bank Institute, CEF-Center of Excellence in Finance, Commonwealth Secretariat, Debt Relief
International, European Bank EBRD, European Central Bank, European Commission, Inter-American Development Bank
(IADB), International Monetary Fund (IMF), International Finance Corporation (IFC), International Monetary Fund (IMF),
MEFMI, OECD, West African Institute for Financial and Economic Management (WAIFEM), World Bank, United Nations
Conference on Trade and Development (UNCTAD).

Universities
Columbia University, CRIEP (Italy), Duke University's Fuqua School of Business, Harvard University, Harvard Business
School, Johns Hopkins University, London Business School, Mays Business School at Texas A&M University, National
Chengchi University, National University of Science and Technology, Norwegian School of Economics and Business
Administration, Stanford University, The George Washington University, University "Dunarea de Jos" Galati Romania,
University of Bologna, University of Brussels, University of California, University of Chicago, University of Colorado,
University of London Birkbeck, University of Maryland, University of Milan, University of Molise, University of Padua,
University of Rome "La Sapienza", University of Rome "Tor Vergata", University of Tokyo, University of Tuzla, University of
Vienna, University of Viterbo "La Tuscia".

Other Institutions
Afrifocus Securities; Association for Financial Markets in Europe (AFME), Barclays Capital, BE Berlin Economics GmbH,
Belgrade Banking Academy, Business Monitor International Limited, Cass Business School, CCM - Carolina Capital Markets,
Centre for Planning and Economic Research, Crown Agents, CfC Stanbic Bank, Colchester Global Investors, Comit de
Inversiones Extranjeras, Concorde Capital, Devfin Advisers AB, DIFC-Dubai International Financial Centre, Digital Bridge
Institute, Econviews, Euromoney, Exchange Data International Limited, Finance for Development-FMO, FTI, HSBC,
International Capital Market Association (ICMA), International Social-Economic Development for Africa (ISEDA), Institut
dAnlisi Econmica (CSIC), Japan Bank for International Cooperation, JCVP Consulting, Johannesburg Stock Exchange
Limited (JSE), KFW Bankengruppe, Korea Bond Pricing, Linus Capital, MAK Azerbaijan Ltd, Mckinsey & Company, Inc.
International, Michele Robinson Consult, Morgan Stanley, NEDBANK, Newstate Partners LLP, Oxford Policy Management
(OPM), Pragma Corporation, Public Debt Finance, Reykjavik Academy, Szzadvg Economic Research, Sifma-Epda, Storkey
& Co. Ltd., The ONE Campaign, Tudor Investment Corporation, United Bank For Africa (UBA) PLC., U.S. Agency for
International Development (USAID).

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For information, contact the PDM Network Secretariat at: Publicdebtnet.dt@tesoro.it

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