Abstract:

The country’s CDS premiums have become an important tool that is widely used in the measurement of credit risk, as an alternative to bond-bono prices and credit rating ratings. Therefore, the identification of the factors that determine the country's CDS primes is of great importance in macrofinancial literature. The external debt/GDP ratio, which is defined as one of the macroeconomic factors affecting the country’s CDS primes and one of the important indicators of the country’s payability, is one of the indicators used in empirical studies that analyze the factors affecting the country’s CDS primes, as the increase in that ratio is an indicator of increased financial vulnerability. In the last few years, the increase in foreign debt/GDP rates in Turkey has been remarkable. The aim of this study is to investigate the relationship between the external debt/GDP ratio and the country’s CDS primes for the 2000:C1-2018:C2 period. The analysis, using quarterly data from the Ministry of Treasury and Finance and Bloomberg regarding variables, applies Fourier SHIN Integration Test and Fourier Granger Causal Test. The results show that there is a positive relationship between the variables.

Abstract:

Sovereign credit default spreads have been commonly used as an alternative credit risk measurement. Hence, identification of the determinants of sovereign CDS premiums has great importance in the macro-finance literature. Of the macro-economic determinants related to sovereign CDS premiums, foreign debt to GDP is one of the major solvency indicators that is analyzed in most empirical studies investigating the determinants of sovereign credit default spreads since high foreign debt to GDP ratio is generally accepted as an indicator of increasing financial fragility. In recent years, the rising trend in foreign debt to GDP ratio has been attracting attention in Turkey. This study investigates the relationship between foreign debt and sovereign CDS premiums and attempts to test the impact of foreign debt to GDP ratio on sovereign CDS premiums in Turkey for the period between 2000:Q1 and 2018:Q2. In order to examine the relationship, Fourier SHIN Cointegration Test and Fourier Granger Causality Test are employed by using quarterly data related to the variables obtained from the Ministry of Treasury and Finance and Bloomberg. The results show that there is a positive relationship between the variables.

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