How does country-specific macro uncertainty affect international debt securities denominated in local currency?
摘要
This study investigates the impact of country-specific macro uncertainty on the currency denomination of international debt securities. By analyzing quarterly data on local currency debt securities issued in international market for 36 countries from 2010Q1 to 2021Q4, we find that economies with higher macro uncertainty are associated with fewer local-currency debt securities issued internationally. However, this association is weaker for global-currency economies and OECD economies. Besides, heightened domestic macro uncertainty can lead to exacerbated exchange rate volatility, higher risk premia, pessimistic sentiment among foreign investors as well as hindered economic growth, thereby reducing local currency debt securities. Meanwhile, the implementation of stricter macro-prudential regulations will help alleviate the adverse impact of macro uncertainty on local-currency debt securities issued internationally. Our findings provide deep insights into how uncertainty shapes local currency debt securities in the international market and the pivotal role of macro-prudential policies.