BIS paper proposes defence against market panics

A working paper published yesterday by the Bank for International Settlements (BIS) proposes a new method for governments to defend their finances from self-fulfilling market panics.

Author Anna Zabai proposes linking government borrowing to the level of interest rates. In Managing default risk, she suggests that if a government commits to low borrowing when interest rates are high, markets can be persuaded that rising interest rates will not cause a sovereign to default. In this way the self

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