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Testing creditor moral hazard in sovereign bond markets: A unified theoretical approach and empirical evidence

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  • Evrensel, Ayşe Y.
  • Kutan, Ali M.

Abstract

This paper critically evaluates the existing empirical literature on creditor moral hazard in sovereign bond markets, proposes a unified theoretical approach to test for IMF-induced creditor moral hazard, and provides empirical evidence, using daily sovereign bond market spreads of Indonesia and Korea. The results suggest that IMF-related news regarding program negotiations and approval may be associated with creditor moral hazard, but their impact on spreads is short-lived, indicating that creditor moral hazard could be best described as a short-run phenomenon.

Suggested Citation

  • Evrensel, Ayşe Y. & Kutan, Ali M., 2004. "Testing creditor moral hazard in sovereign bond markets: A unified theoretical approach and empirical evidence," ZEI Working Papers B 09-2004, University of Bonn, ZEI - Center for European Integration Studies.
    • Handle: RePEc:zbw:zeiwps:b092004
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    1. William R. Cline, 1995. "International Debt Reexamined," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 46, April.
    2. Barry Eichengreen & Ashoka Mody, 1998. "What Explains Changing Spreads on Emerging-Market Debt: Fundamentals or Market Sentiment?," NBER Working Papers 6408, National Bureau of Economic Research, Inc.
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    13. Ali M. Kutan & Ayse Y. Evrensel, 2004. "Creditor Moral Hazard in Equity Markets: A Theoretical Framework and Evidence from Indonesia and Korea," William Davidson Institute Working Papers Series 2004-659, William Davidson Institute at the University of Michigan.
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    Cited by:

    1. Bratis, Theodoros & Laopodis, Nikiforos T. & Kouretas, Georgios P., 2015. "Creditor moral hazard during the EMU debt crisis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 39(C), pages 122-135.
    2. Zuccardi Huertas Igor Esteban, 2015. "Sovereign Spreads in the Eurozone: Is Market Discipline Working?," Working Papers 2015-20, Banco de México.

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    More about this item

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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