Implicit Government Guarantee Measurement Based on PMC Index Model

TL;DR

This paper introduces a novel method using PMC index model and text mining to quantify and analyze the effectiveness of policies reducing implicit government guarantees in municipal bonds, aiding risk management.

Contribution

It proposes a new approach combining PMC index and text mining to measure the impact of policies on implicit government guarantees in bond markets.

Findings

Recent policies have effectively reduced implicit guarantee intensity.

Policy effectiveness, clarity, and incentives influence guarantee levels.

The method provides a quantitative assessment of policy impact.

Abstract

The implicit government guarantee hampers the recognition and management of risks by all stakeholders in the bond market, and it has led to excessive debt for local governments or state-owned enterprises. To prevent the risk of local government debt defaults and reduce investors' expectations of implicit government guarantees, various regulatory departments have issued a series of policy documents related to municipal investment bonds. By employing text mining techniques on policy documents related to municipal investment bond, and utilizing the PMC index model to assess the effectiveness of policy documents. This paper proposes a novel method for quantifying the intensity of implicit governmental guarantees based on PMC index model. The intensity of implicit governmental guarantees is inversely correlated with the PMC index of policies aimed at de-implicitizing governmental guarantees. Then as these policies become more effective, the intensity of implicit governmental guarantees diminishes correspondingly. These findings indicate that recent policies related to municipal investment bond have indeed succeeded in reducing implicit governmental guarantee intensity, and these policies have achieved the goal of risk management. Furthermore, it was showed that the intensity of implicit governmental guarantee affected by diverse aspects of these policies such as effectiveness, clarity, and specificity, as well as incentive and assurance mechanisms.