Making decisions on issuing sub-federal bonds in Russia: key factors modeling

Abstract

Recently, Russian regions have been more active in using sub-federal bonds to finance regional debt. However, the Russian sub-federal bonds market’s liquidity is still low while regional authorities often use commercial bank loans to finance the regional budget deficits. The purpose of this study is to identify the key factors influencing the regional authorities’ decisions to issue sub-federal bonds. The impacts of the following factors were assessed: the regional budget deficit volume, the Central Bank key rate, the budget loan proportion of the regional debt, the regional debt burden, average per capita cash income in the region, the employed in the region. We used monthly data for 85 regions (constituent entities of the Russian Federation) for the period 2015–2019. Various regression models for panel data have been developed: those predicting probabilities of a non-zero value of regional bond volume, the volume itself, and combined generalized linear mixed hurdle model with a negative binomial distribution (estimated with glmmTMB contributed package of R). The latter showed non-significant dependence of regional bond volume on region budget surplus, prioritizing unobserved region-specific random factors.