November 5th, 2019

Discussion Paper 2019/9 is now available: Chen, Y. / Jiang, L.: Liquidity Risk and Corporate Bond Yield Spread: Evidence from China?

Abstract:

This paper investigates the contribution of liquidity risk to Chinese corporate bond spreads. We calculate corporate bond spreads based on the full treasury yield curve and establish a set of liquidity measures of the Chinese corporate bonds. Our empirical study shows that liquidity premium accounts for a relatively smaller portion of corporate bond spread in China, although the market liquidity is low and corporate bond issuers are strictly pre-screened. These findings are interesting, as the developed markets have better liquidity and less pre-issuance restriction, and liquidity premium still explains a relatively larger portion of corporate bond spread. Besides, we also explore the determinants of Chinese corporate bond liquidity and default premiums.

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Discussion Paper 2019/6 is now available: El-Shagi, M. / Fidrmuc, J. / Yamarik, S.: Inequality and Credit Growth in Russian Regions

Abstract:

We test the Rajan hypothesis using data for 75 highly heterogeneous Russian regions between the Russian crisis and the introduction of international sanctions (2000-2012). Applying static as well as dynamic panel data models, we show that a rise in income inequality measured by regional Gini indices is significantly correlated with the growth of personal loans. Thus, the rising inequality in Russia is likely to have implications on financial staiblity and occurrence of banking crises. Moreover, the correlation of inequality and corporate loans indicates that inequality affects loans growth across more channels than those implied by the Rajan hypothesis.

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Discussion Paper 2019/5 is now available: El-Shagi, M. / von Schweinitz, G.: Fiscal Policy and Fiscal Fragility: Evidence from the OECD

Abstract:

In this paper, we use local projections to investigate the impact of consolidation shocks on GDP growh, conditional on the fragility of government finances. Based on the database of fiscal plans in OECD countries, we show that spending shocks are less detrimental than tax-based consolidation. In times of fiscal fragility, our results indicate strongly that governments should consolidate through surprise policy changes rather than announcements of consolidation at a later horizon.

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May 23rd, 2019

Discussion Paper 2019/4 is now available: El-Shagi, M. / Jiang, L.: Efficient Dynamic Yield Curve Estimation in Emerging Financial Markets

Abstract:

The current state-of-the-art estimation of yield curves relies on the dynamic state space version of the Nelson and Siegel (1987) model proposed in the seminal paper by Diebold et al. (2006). However, things become difficult when applying their approach to emerging economies with less frequently bond issuance and more sparse maturity available. Therefore, the traditional state space representation, which requires dense and fixed grids of maturities, may not be possible. One remedy is to use the traditional Nelson and Siegel (1987) OLS estimation instead, though it sacrifices efficiency by ignoring the time dimension. We propose a simple augmentation of the Diebold et al. (2006) framework, which is more efficient than OLS estimation as it allows exploiting information from all available bonds and the time dependency of yields. We demonstrate the efficiency gains generated by our method in five case studies for major emerging economies including four of the BRICS.

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More Articles ...

  1. New Discussion Paper Available - DP 2019/3
  2. 4th Monetary Policy Report Published
  3. New Discussion Paper Available - DP 2019/2
  4. New Discussion Paper Available - DP 2019/1
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