Determinants of sub-sovereign bond yield spreads – The role of fiscal fundamentals and federal bailout expectations

Beck, Roland; Ferrucci, Gianluigi; Hantzsche, Arno; Rau-Göhring, Matthias

doi:10.1016/j.jimonfin.2017.08.003

Cited by 22 publications

(14 citation statements)

References 46 publications

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“…Jenkner and Lu [7] proved the operation of the risk transfer hypothesis based on Spanish data. A similar conclusion was drawn by Beck et al [4] on the basis of an international sample. Based on the risk transfer hypothesis, market processes allow municipalities to run into heavy debt due to reliance on central financial assistance.…”

Section: Central/general Factors (1) Liberalization and Deregulationsupporting

confidence: 86%

“…Market discipline means that the financial market punishes sub-sovereign entities with deteriorating financial standing by charging higher risk premiums in order to discipline their budget. However, certain authors [4,5] still argue today that the market can act as a disciplinary force in this segment if the subnational entities cannot genuinely rely on assistance from the central government, in other words, if they have a hard budget constraint. In the literature this is termed a "credible no bailout" system.…”

Section: Central/general Factors (1) Liberalization and Deregulationmentioning

confidence: 99%

“…Note that Beck et al [4] argue that in certain cases the "too big to be rescued" phenomenon may also exist in addition to the former. The authors found that the subnational entities, which had a significant economic size relative to the sovereign state paid a higher risk premium.…”

Section: Tools and Experiences Of Crisis Managementmentioning

confidence: 99%

“…We disagree with this argumentation for two reasons: (1) the experiences obtained from the subnational fiscal crises do not support it (there has never been any case when larger subnational entities were given less help); and (2) for political and economic reasons, the sovereign state can afford even less to allow larger provinces to go bankrupt. The correlation identified by Beck et al [4] instead represents the risk that in the case of large subnational entities, the success of crisis management is more uncertain and may drag on in time. However, this does not mean that they do not receive central assistance due to their large size.…”

Section: Tools and Experiences Of Crisis Managementmentioning

confidence: 99%

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Subnational Fiscal Consolidation: The Hungarian Path from Crisis to Fiscal Sustainability in Light of International Experiences

Bethlendi

Lentner

2018

Sustainability

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The purpose of this study is to broaden the literature on the factors that contribute to the over-indebtedness of the subnational sector and the related crisis management tools based on the experience of Hungary. In addition to the phenomena known from the literature (vertical imbalance, the fiscal tightening of the central government, the weakness of central control and transparency, and local government-owned companies), non-standard factors also contributed to the evolution of a subnational fiscal crisis in Hungary. The Hungarian municipalities had, in practice, built up a carry trade position for speculative purposes, mostly from Swiss Franc funding. The other relevant observation based on experience is that, when significant amounts of central development funds fail to form a carefully considered development policy, over the long term they could undermine local fiscal stability. In addition to extraordinary fiscal transfer and full assignment of debts, the Hungarian subnational fiscal consolidation also involved a novel technique: the obligations were transferred to the state through the assumption of duties. In Hungary, in line with international experiences, central financial assistance was accompanied by increased fiscal control and by a tightening of the requirements for budgetary transparency and data reporting. Central approval for the assumption of new debts became an important element of fiscal sustainability. In addition to the above, this study argues that in political, social, and legal terms, credible no-bailout regimes do not offer an optimum solution for the subnational sector.

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Section: Central/general Factors (1) Liberalization and Deregulationsupporting

confidence: 86%

Section: Central/general Factors (1) Liberalization and Deregulationmentioning

confidence: 99%

Section: Tools and Experiences Of Crisis Managementmentioning

confidence: 99%

Section: Tools and Experiences Of Crisis Managementmentioning

confidence: 99%

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Subnational Fiscal Consolidation: The Hungarian Path from Crisis to Fiscal Sustainability in Light of International Experiences

Bethlendi

Lentner

2018

Sustainability

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“…This rather difficult evaluation is based on diverse criteria than the financial performance of firms (Beck et al, 2017). Regional financial performance is influenced by various socio-economic determinants.…”

mentioning

confidence: 99%

Using Meta Learning Methods to Forecast Sub-Sovereign Credit Ratings

Evelyn¹

2018

JEERBE

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This paper mainly analyses the forecasting of sub-sovereign credit ratings using machine learning methods in the non-US, Europe and other regional and sub-sovereign ratings. Specific focus is based on developing an accurate forecasting model based on machine learning. The forecasting accuracy was examined on two forecasting horizons, one and two years ahead. The study was designed to determine the cost sensitivity of various machine learning methods and to develop an accurate decision-support system that minimizes the cost of credit rating classification for sub-sovereign entities across countries and world regions. Each side of the economic, financial and debt and budget, revenues and expenditures were considered to provide sufficient inputs for the machine learning models. The analyses is to consider the ordinal character of the rating classes, classification cost (cost-sensitivity) which is used as objective function, in assessing credit ratings and evaluating of bonds i.e. regional credit rating modeling. This paper has been able to demonstrate that machine learning models based on current available financial and economic data present accurate classifications of credit ratings. Also the sub-sovereign credit rating forecast signified that the Random Forest and SMO algorithm performed significantly better than the statistical methods. Some practical implications were also provided.

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Predicting Regional Credit Ratings Using Ensemble Classification with MetaCost

Toseafa

Hájek

2019

Advances in Intelligent Systems and Computing

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Determinants of sub-sovereign bond yield spreads – The role of fiscal fundamentals and federal bailout expectations

Cited by 22 publications

References 46 publications

Subnational Fiscal Consolidation: The Hungarian Path from Crisis to Fiscal Sustainability in Light of International Experiences

Subnational Fiscal Consolidation: The Hungarian Path from Crisis to Fiscal Sustainability in Light of International Experiences

Using Meta Learning Methods to Forecast Sub-Sovereign Credit Ratings

Predicting Regional Credit Ratings Using Ensemble Classification with MetaCost

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