CountryRisk_Final Paper[58].pdf (241.23 kB)
Central bank gold reserves and sovereign credit risk
journal contribution
posted on 2023-11-20, 12:34 authored by Sawan RathiSawan Rathi, Sanket Mohapatra, Arvind SahayThis paper performs a cross-country panel data analysis to determine whether gold holdings of central banks contribute to sovereign creditworthiness. Higher central bank gold holdings are found to reduce sovereign credit default swap (CDS) spreads, a measure of country risk. This effect is stronger during global and country-specific crisis episodes. We account for endogeneity of central bank gold reserves using an instrumental variables approach. Potential economic mechanisms for the baseline findings include lower likelihood of a rating downgrade and reduction in economic uncertainty. The findings suggest central bank gold can mitigate a nation’s credit risk amidst an uncertain global environment.
History
Publication status
- Published
File Version
- Accepted version
Journal
Finance Research LettersISSN
1544-6123Publisher
Elsevier BVPublisher URL
External DOI
Volume
45Article number
102127Department affiliated with
- SPRU - Science Policy Research Unit Publications
- Business and Management Publications
Institution
University of SussexFull text available
- Yes
Peer reviewed?
- Yes