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Credit Default Swaps And Macroeconomic Forecasts - How Can They Influence Each Other?

Author

Listed:
  • Alina Georgeta AILINCA

    (“Victor Slavescu” Centre for Financial and Monetary Research, Bucharest, Romania)

  • Catalin DRAGOI

    (“Victor Slavescu” Centre for Financial and Monetary Research, Bucharest, Romania)

Abstract

Credit default swaps is an increasingly used tool forassessing access to external funding, although any increase in investors' riskaversion may influence their quotations. Vulnerabilities and tensions at theinternational and regional level may lead to increased volatility in financial markets, increase risk aversion to investors, influence macroeconomic forecasts and ratings of rating agencies, increase credit spreads volatility swaps, tighten exchange rates and inflation and may also affect access to sovereign foreign financing. Also, macroeconomic forecasts, whether favourable or unfavourable, influence the value of CDS quotations. Therefore, deviations from the reality of the forecasts may have clear negative effects on CDS, sovereign risk and macroeconomic realities that they should reflect. When forecasts are more unfavourable than in reality, the CDS may tend to grow, and this growth can lead to the deterioration of macroeconomic reality and implicitly forecasting, causing a negative snow ball effect. Thus, this article aims to analyze the link between CDS, sovereign risk, macroeconomic developments and forecasts for Romania. The article aims to provide a number of solutions to alleviate these short comings.

Suggested Citation

  • Alina Georgeta AILINCA & Catalin DRAGOI, 2018. "Credit Default Swaps And Macroeconomic Forecasts - How Can They Influence Each Other?," Contemporary Economy Journal, Constantin Brancoveanu University, vol. 3(4), pages 190-197.
    • Handle: RePEc:brc:brccej:v:3:y:2018:i:4:p:190-197
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    References listed on IDEAS

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    1. Irina Mihai & Florian Neagu, 2011. "CDS and government bond spreads - how informative are they for financial stability analysis?," IFC Bulletins chapters, in: Bank for International Settlements (ed.), Proceedings of the IFC Conference on "Initiatives to address data gaps revealed by the financial crisis", Basel, 25-26 August 2010, volume 34, pages 415-429, Bank for International Settlements.
    2. Coudert, V. & Gex, M., 2006. "Can risk aversion indicators anticipate financial crises?," Financial Stability Review, Banque de France, issue 9, pages 67-87, December.
    3. Hekuran NEZIRI, 2009. "Can Credit Default Swaps Predict Financial Crises? Empirical Study On Emerging Markets," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 4(1(7)_ Spr).
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    More about this item

    Keywords

    CDS; Forecasts; Sovereign risk; Romania;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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