Online Archive of University of Virginia Scholarship
Global Risk Aversion and Sovereign Debt Denomination160 views
Author
Wilhoite, John, Economics - Graduate School of Arts and Sciences, University of Virginia0009-0009-8167-1706
Advisors
Young, Eric, AS-Economics (ECON), University of Virginia
Van Wincoop, Eric, AS-Economics (ECON), University of Virginia
Farmer, Leland, AS-Economics (ECON), University of Virginia
Abstract
This paper studies how fluctuations in global risk aversion shape the currency composition of sovereign debt in emerging market economies. Using a multi-country panel, we document that periods of higher risk aversion are associated with a lower share of local currency debt held by foreign investors. To identify the mechanism through which risk aversion affects the share of local currency debt in equilibrium, we develop a small open-economy model with risk-averse foreign investors, discretionary monetary policy, and long-maturity sovereign debt. When risk aversion rises, the exchange rate risk premium and capital gains risk premium embedded in local currency bonds increase, constraining the government’s ability to borrow in local currency.
Degree
PHD (Doctor of Philosophy)
Keywords
Sovereign Debt; Risk Aversion; Local Currency Debt; International Finance; Open Economy Macroeconomics; Emerging Market Economies; Debt Denomination
Wilhoite, John. Global Risk Aversion and Sovereign Debt Denomination. University of Virginia, Economics - Graduate School of Arts and Sciences, PHD (Doctor of Philosophy), 2026-04-29, https://doi.org/10.18130/wwyt-a187.
