Government Bonds in Domestic and Foreign Currency: The Role of Institutional Factors
38 Pages Posted: 6 Aug 2003
Date Written: July 25, 2003
Abstract
This paper studies how institutional factors affect the size and currency composition of government bonds for a large sample of economies. Important for the debate on limiting financial crises, we find that less flexible exchange rate regimes are associated with larger foreign currency bond markets, suggesting countries either aim to signal their commitment to a fixed exchange rate regime or face moral hazard from international bailouts. We also find evidence that bigger economies with wider domestic investor bases have relatively larger domestic currency and smaller foreign currency bond markets. And foreign investor demand is mainly geared to foreign currency bonds.
Keywords: government debt, government bond markets, sovereign bonds, foreign currency debt, currency structure, institutions, exchange rate regime
JEL Classification: F21, F33, F34, F36, G15, G18
Suggested Citation: Suggested Citation
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