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<p>This study investigates the determinants of Russia’s probability of default (PD) within the context of several internal and external factors related to monetary policy (market-based interest rate, currency exchange rate), current account deficit (oil prices, natural gas prices), and global risk perception (gold prices, VIX index). Using Dynamic Conditional Correlation–Exponential Generalized Autoregressive Conditional Heteroskedasticity (DCC-EGARCH) and Time-Varying Parameter Vector Autoregression (TVP-VAR) analyses, we find that shifts in Russia's monetary policy exert a stronger influence on PD than commodity prices or global financial indicators. Spillovers from and to PD are further explored within the context of geopolitical risk and sovereign credit ratings. Our results reveal asymmetric spillovers between PD and the selected variables. Monetary policy indicators, particularly the market-based interest rate and exchange rate, significantly influence PD under both positive and negative returns. Conversely, Russia’s PD exhibits a spillover effect on gold prices in positive and negative returns, and natural gas in negative returns, highlighting Russia’s influence on safe-haven asset demand and on global energy markets. During the Ukraine conflict, we observe persistent and pronounced spillovers from the exchange rate to PD in negative returns. Additionally, spillovers between PD and geopolitical risk suggests potential credit rating adjustments for Russia, offering early-warning signals for investors and policymakers.</p>

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Determinants of Russia’s probability of default: evidence from domestic and global indicators

  • 期刊论文

  • 发表日期：

    2025年7月16日

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  • Mohamed M. Sraieb,
  • Shahnawaz Muhammed,
  • Vladimir Dženopoljac,
  • Samet Gunay

摘要

This study investigates the determinants of Russia’s probability of default (PD) within the context of several internal and external factors related to monetary policy (market-based interest rate, currency exchange rate), current account deficit (oil prices, natural gas prices), and global risk perception (gold prices, VIX index). Using Dynamic Conditional Correlation–Exponential Generalized Autoregressive Conditional Heteroskedasticity (DCC-EGARCH) and Time-Varying Parameter Vector Autoregression (TVP-VAR) analyses, we find that shifts in Russia's monetary policy exert a stronger influence on PD than commodity prices or global financial indicators. Spillovers from and to PD are further explored within the context of geopolitical risk and sovereign credit ratings. Our results reveal asymmetric spillovers between PD and the selected variables. Monetary policy indicators, particularly the market-based interest rate and exchange rate, significantly influence PD under both positive and negative returns. Conversely, Russia’s PD exhibits a spillover effect on gold prices in positive and negative returns, and natural gas in negative returns, highlighting Russia’s influence on safe-haven asset demand and on global energy markets. During the Ukraine conflict, we observe persistent and pronounced spillovers from the exchange rate to PD in negative returns. Additionally, spillovers between PD and geopolitical risk suggests potential credit rating adjustments for Russia, offering early-warning signals for investors and policymakers.