International Fisher Effect and Sovereign debt crisis: Difference between pages

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imported>Doug Williamson
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imported>Doug Williamson
(Add quote - source - IMF - https://www.worldbank.org/en/publication/wdr2022)
 
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This theory predicts that the spot foreign exchange rate will change over time to reflect and offset differences in interest rates in the respective currencies.  
''Sovereign debt - sovereign risk - default.''


So for example, unhedged currency depreciation losses will on average negate and match exactly any gains on interest differentials between the two currencies.
Widespread conditions of potential or actual default by indebted countries, with increased sovereign risk and losses for lenders.




One way of speculating that spot exchange rate will not change by as much as this, is known as a carry trade.
:<span style="color:#4B0082">'''''Debt sustainability problems worsen over time'''''</span>


Among other things, the International Fisher Effect suggests that it should not be possible to earn consistent profits by entering carry trade speculations.
:"Sovereign debt crises are costly for sustained growth.
 
:One study finds that every year a country remains in default reduces its GDP growth by 1–1.5 percentage points.
 
:High levels of sovereign debt also have significant social costs.
 
:They reduce the government’s ability to spend on social safety nets and public goods such as education and public health, which can worsen inequality and human development outcomes.
 
 
:When debt sustainability problems are not resolved, they tend to worsen over time because the choices of each government constrain the options of future governments as more revenue is directed to debt service.
 
:Sovereign debt crises also frequently coincide with other types of economic crises — such as financial sector crises, rising inflation, and output collapses—that have far-reaching negative consequences for poverty and inequality."
 
:''International Monetary Fund - World Development Report 2022 - p204.''




== See also ==
== See also ==
* [[Carry trade]]
* [[Coronavirus crisis]]
* [[Depreciation]]
* [[Default]]
* [[Expectations theory]]
* [[eurozone crisis]]
* [[Fisher Effect]]
* [[Forbearance]]
* [[Four way equivalence model]]
* [[Global Financial Crisis]]
* [[Interest rate parity]]
* [[Grexit]]
* [[No arbitrage conditions]]
* [[Gross Domestic Product]] (GDP)
* [[Purchasing power parity]]
* [[Inequality]]
* [[Spot rate]]
* [[Inflation]]
* [[International Monetary Fund]]  (IMF)
* [[Poverty]]
* [[Public goods]]
* [[Restructuring]]
* [[Sovereign]]
* [[Sovereign debt]]
* [[Sovereign risk]]
* [[Sustainability]]
 
 
==External link==
*[https://www.worldbank.org/en/publication/wdr2022 IMF - World Development Report - 2022]


[[Category:The_business_context]]
[[Category:The_business_context]]
[[Category:Identify_and_assess_risks]]
[[Category:Identify_and_assess_risks]]
[[Category:Manage_risks]]
[[Category:Manage_risks]]
[[Category:Cash_management]]
[[Category:Risk_frameworks]]
[[Category:Risk_reporting]]
[[Category:Financial_products_and_markets]]
[[Category:Financial_products_and_markets]]
[[Category:Liquidity_management]]

Revision as of 20:54, 22 September 2022

Sovereign debt - sovereign risk - default.

Widespread conditions of potential or actual default by indebted countries, with increased sovereign risk and losses for lenders.


Debt sustainability problems worsen over time
"Sovereign debt crises are costly for sustained growth.
One study finds that every year a country remains in default reduces its GDP growth by 1–1.5 percentage points.
High levels of sovereign debt also have significant social costs.
They reduce the government’s ability to spend on social safety nets and public goods such as education and public health, which can worsen inequality and human development outcomes.


When debt sustainability problems are not resolved, they tend to worsen over time because the choices of each government constrain the options of future governments as more revenue is directed to debt service.
Sovereign debt crises also frequently coincide with other types of economic crises — such as financial sector crises, rising inflation, and output collapses—that have far-reaching negative consequences for poverty and inequality."
International Monetary Fund - World Development Report 2022 - p204.


See also


External link

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