Working Paper: CEPR ID: DP3789
Authors: Stijn Claessens; Daniela Klingebiel; Sergio Schmukler
Abstract: The development of government bond markets and, in particular, their currency composition have recently received much interest, partly because of their relation with financial crises. This Paper studies determinants of the size and currency composition of government bond markets for a panel of developed and developing countries. We find that countries with larger economies, greater domestic investor bases and more flexible exchange rate regimes have larger domestic currency bond markets, while smaller economies rely more on foreign currency bonds. Better institutional frameworks and macroeconomic fundamentals enhance both domestic currency bond markets and increase countries? ability to issue foreign currency bonds, while they raise the share of foreign exchange bonds.
Keywords: currency structure; foreign currency debt; government bond markets; government debt; sovereign bonds
JEL Codes: F21; F33; F34; F36; G15; G18
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| size of the domestic economy (GDP) (E20) | development of domestic currency bond markets (G15) |
| better institutional frameworks (O17) | ability to issue both domestic and foreign currency bonds (G15) |
| sound economic policies (E65) | ability to issue both domestic and foreign currency bonds (G15) |
| more flexible exchange rate regimes (F33) | larger domestic currency bond markets (G15) |
| smaller economies (P19) | reliance on foreign currency bonds (F31) |