Financial Crises

Zhiguo He · Arvind Krishnamurthy · Konstantin Milbradt

What makes a sovereign bond a safe asset is not the strength of its fundamentals in absolute terms but their strength relative to the alternatives, together with the size of the debt outstanding -- …

Douglas W. Diamond · Philip H. Dybvig

A three-period model in which households face a privately observed, uninsurable risk of needing to consume early, and where a demand deposit contract lets banks share that risk better than any market …

Kristin J. Forbes · Francis E. Warnock

Dating extreme capital-flow episodes from gross rather than net flows splits the picture in two -- "surges" and "stops" driven by foreign investors, "flight" and "retrenchment" driven by domestic …

Veronica Guerrieri · Guido Lorenzoni

This 2017 *Quarterly Journal of Economics* paper (circulated as NBER Working Paper 17583, November 2011) asks how an economy adjusts when households' ability to borrow is suddenly and permanently …

Markus K. Brunnermeier

Brunnermeier explains how a few hundred billion dollars of mortgage-market losses amplified into the 2007-08 financial crisis, which wiped out roughly $8 trillion in U.S. stock market wealth.

Carmen M Reinhart · Kenneth S Rogoff

Sorting about 3,700 annual observations from 44 countries over roughly two centuries into four debt-to-GDP buckets, the authors find little relationship between public debt and growth below 90 percent …

Maximilian Grimm · Òscar Jordà · Moritz Schularick · Alan M. Taylor

This paper provides the first long-run causal evidence that a persistently loose stance of monetary policy — defined as extended periods of low interest rates relative to the neutral rate — …

Maurice Obstfeld

This 1986 American Economic Review paper by Maurice Obstfeld shows that speculative attacks on a fixed exchange rate do not have to be the inevitable, fully-anticipated consequence of unsustainable …

Harold L. Cole · Timothy Kehoe

A dynamic stochastic general equilibrium model in which a government that must roll over one-period debt can be forced into default purely because lenders expect it -- and a characterisation of …

Josefin Meyer · Carmen M Reinhart · Christoph Trebesch

Two centuries of monthly prices for 1,552 foreign-currency government bonds traded in London and New York, matched bond-by-bond to a new archive of defaults and haircuts, show that external sovereign …

Mark Aguiar · Manuel Amador

A Handbook survey that organises the economics of sovereign debt around a single benchmark limited-commitment model, then shows how each strand of the literature -- debt overhang, equilibrium default, …

Juan J Cruces · Christoph Trebesch

The first present-value estimates of creditor losses for all 180 sovereign debt restructurings with foreign banks and bondholders between 1978 and 2010 -- average haircut 37%, with half the cases …

Enrique G. Mendoza

A standard small-open-economy business-cycle model, augmented with a collateral constraint that caps total debt -- including within-period working-capital loans -- at a fraction of the market value of …

C. Bora Durdu · Alex Martin · Ilknur Zer

US monetary tightening raises the probability of a banking crisis abroad, but only where the exposure to the United States is direct -- heavy bilateral trade or large dollar-denominated liabilities. …

Stephen Morris · Hyun Song Shin

This 1998 American Economic Review paper by Stephen Morris and Hyun Song Shin resolves the multiple-equilibrium indeterminacy of standard self-fulfilling currency-attack models by replacing common …