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Economic Quarterly

Sept. 29, 2020

Richmond Fed’s Economic Quarterly Analyzes the Role of CDS in Sovereign Debt Crises

In the latest issue of Economic Quarterly, researchers at the Richmond Fed suggest that large dealers of credit default swaps (CDS) can provide liquidity in times of financial distress by shouldering credit risk that smaller traders want to unload.

The researchers, led by economist Bruno Sultanum, study the average positions of large CDS dealers close to sovereign credit crises in Argentina, Venezuela, and Ukraine. In these cases, they find that large dealers tended to sell CDS as risk increased and buy CDS as risk decreased. This behavior is the opposite of what one would expect if the large dealers were merely taking speculative bets, as some commentators have contended.

This issue of Economic Quarterly also features “Inflation Target Zones as a Commitment Mechanism” by Richmond Fed economist Felipe Schwartzman. Economic Quarterly is a free publication containing economic analysis pertinent to Federal Reserve monetary and banking policy. More information is available at (800) 322-0565 or online.


As part of our nation’s central bank, the Richmond Fed is one of 12 regional Reserve Banks working together with the Board of Governors to support a healthy economy and deliver on our mission to foster economic stability and strength. We connect with community and business leaders across the Fifth Federal Reserve District — including the Carolinas, District of Columbia, Maryland, Virginia, and most of West Virginia — to monitor economic conditions, address issues facing our communities, and share this information with monetary and financial policymakers. We also work with banks to ensure they are operating safely and soundly, supply financial institutions with currency that’s fit for distribution, and provide a safe and efficient way to transfer funds through our nation’s payments system.

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