Currency Asymmetry : What Effect on the Public Debt of CEMAC Member Countries ?
DOI:
https://doi.org/10.59051/joaf.v13i1.524Keywords:
Currency mismatches, original sin, public debt, exchange rate, risk premium.Abstract
Object : Currency mismatch is a phenomenon that affects developing countries because of their dependence on foreign currency-denominated international borrowing and the weakness of their currencies. Such a situation could have negative effects in both the private and public spheres. The purpose of this paper is then to test whether such a phenomenon affects public debt in developing countries that are members of a monetary union such as the CEMAC.
Methodology : We use dynamic panel modeling based on the dynamic least squares estimator with error correction over the period 1980-2017.
Results : We find that this phenomenon increases the cost of debt in CEMAC member countries only in the short run and is neutral in the long run. We believe that this result could be explained through two channels : risk premia on the one hand, and the exchange rate on the other. A rigorous management of the public debt should thus take into account such a phenomenon in order to minimize its harmful effects.
Originality of the article : The originality of the article is twofold. First, we use a new measure of currency mismatch based on government data. On the other hand, the study of such a relationship has never been developed in the context of CEMAC member countries.
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