A new analysis for domestic public debt sustainability with CDS (Credit Default Swaps)

In this thesis, the existence of a valid domestic debt threshold in terms of the sustainability of public domestic debts of national economies in terms of 20 developing and developed countries in the period between 2010Q1 and 2019Q4 after the 2008 global economic crisis is investigated. The main issue emphasized in the classical framework in sustainability analysis is the intertemporal budget constraint. However, threshold analysis is another sustainability analysis method that is frequently emphasized. With the threshold analysis approach, the risks related to default of debtors are discussed in the context of various economic variables, and in this context, remarkable comparisons are provided for the authorities. As a result, threshold analyzes are important policy tools for the analysis of public debt sustainability. In the thesis, it is investigated within the framework of threshold analysis whether the indebtedness levels of the 20 countries that make up the sample create a critical threshold in terms of sustainability and, accordingly, the default risk of the countries are represented by the CDS premium. In this framework, a panel regression analysis is carried out under the assumption that the asymmetric effect on the sustainability of the public domestic debt corresponds to the countries' CDS premiums. In the analysis, CDS premiums are dependent; while the public domestic debt ratio is the main independent variable. By using the threshold regression estimation method developed by Hansen (1999), the debt thresholds affecting the public domestic debt sustainability were tried to be estimated, and as a result, it was concluded that there are asymmetric effects determined by the debt thresholds, which are statistically significant, in the relationship between public domestic debt burdens and CDS premiums.