Hoover Institution | The Ultralong Sovereign Default Risk | Hoover Institution @HooverInstitution | Uploaded 2 months ago | Updated 23 hours ago
Wednesday, August 7, 2024
Hoover Institution | Stanford University
Radek Paluszynski, associate professor of economics at the University of Houston, discussed his paper “The Ultralong Sovereign Default Risk.”
PARTICIPANTS
Radek Paluszynski, John Taylor, Annelise Anderson, Doug Branch, Ruxandra Boul, Pedro Carvalho, John Cochrane, Andy Filardo, Daniel Flynn, Paul Gregory, Bob Hall, Ken Judd, Roman Kräussl, Evan Koenig, Hyunju Lee, Tom Stephenson, Jack Tatom
ISSUES DISCUSSED
Radek Paluszynski, associate professor of economics at the University of Houston, discussed his paper “The Ultralong Sovereign Default Risk.”
John Taylor, the Mary and Robert Raymond Professor of Economics at Stanford University and the George P. Shultz Senior Fellow in Economics at the Hoover Institution, was the moderator.
PAPER SUMMARY
Between 2010 and 2015, Mexican government issued external debt worth 0.5% of its GDP in the form of century bonds. Using a sovereign default model with endogenous maturity and variable risk-free rate, I propose a theory of the ultralong debt issuances and investigate the resulting bond spreads. Government issues such bonds in order to insure against low-frequency movements in the risk-free rate, and the benefit from such hedging is largest when interest rates are low. The model calibrated to Mexico’s default history comes remarkably close to predicting the spreads on 100-year bonds observed in the data. This suggests that Mexico is expected to remain a frequent defaulter in the next century.
To read the paper click the following link
https://uh.edu/%7Erpaluszy/research.html
To read the slides, click the following link
hoover.org/sites/default/files/2024-08/paluszynski_hoover_aug7.pdf
Wednesday, August 7, 2024
Hoover Institution | Stanford University
Radek Paluszynski, associate professor of economics at the University of Houston, discussed his paper “The Ultralong Sovereign Default Risk.”
PARTICIPANTS
Radek Paluszynski, John Taylor, Annelise Anderson, Doug Branch, Ruxandra Boul, Pedro Carvalho, John Cochrane, Andy Filardo, Daniel Flynn, Paul Gregory, Bob Hall, Ken Judd, Roman Kräussl, Evan Koenig, Hyunju Lee, Tom Stephenson, Jack Tatom
ISSUES DISCUSSED
Radek Paluszynski, associate professor of economics at the University of Houston, discussed his paper “The Ultralong Sovereign Default Risk.”
John Taylor, the Mary and Robert Raymond Professor of Economics at Stanford University and the George P. Shultz Senior Fellow in Economics at the Hoover Institution, was the moderator.
PAPER SUMMARY
Between 2010 and 2015, Mexican government issued external debt worth 0.5% of its GDP in the form of century bonds. Using a sovereign default model with endogenous maturity and variable risk-free rate, I propose a theory of the ultralong debt issuances and investigate the resulting bond spreads. Government issues such bonds in order to insure against low-frequency movements in the risk-free rate, and the benefit from such hedging is largest when interest rates are low. The model calibrated to Mexico’s default history comes remarkably close to predicting the spreads on 100-year bonds observed in the data. This suggests that Mexico is expected to remain a frequent defaulter in the next century.
To read the paper click the following link
https://uh.edu/%7Erpaluszy/research.html
To read the slides, click the following link
hoover.org/sites/default/files/2024-08/paluszynski_hoover_aug7.pdf
