Working Paper: CEPR ID: DP7347
Authors: Marc Flandreau; Juan H. Flores; Norbert Gaillard; Sebastian Nietoparra
Abstract: We provide a comparison of salient organizational features of primary markets for foreign government debt over the very long run. We focus on output, quality control, information provision, competition, pricing, charging and signaling. We find that the market set up experienced a radical transformation in the recent period and interpret this as resulting from the rise of liability insurance provided by rating agencies. Underwriters have given up their former role as gatekeepers of liquidity and certification agencies to become aggressive competitors in a new speculative grade market.
Keywords: Banks; Competition; Certification; Primary Bond Market; Sovereign Debt Crises
JEL Codes: F34; G14; G24; N2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| identity of underwriters (G24) | likelihood of defaults in sovereign bonds (F34) |
| specialization in riskier securities (G24) | clustered defaults (C38) |
| shift from certifiers to mere issuers (G24) | random distribution of defaults (D39) |
| outsourcing of certification to rating agencies (G24) | increased prevalence of riskier securities (G10) |
| transition from certifying role to competitive market structure (L10) | implications for risk profile of modern sovereign debt (F34) |