Sovereign Debt

Jeremy Bulow · Kenneth Rogoff

This 1989 Journal of Political Economy paper by Jeremy Bulow and Kenneth Rogoff models sovereign debt renegotiation as an ongoing bilateral bargaining process (following Rubinstein's …

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 -- …

Robert J. Barro

This 1974 Journal of Political Economy paper by Robert Barro asks whether an increase in government bonds raises households' perceived net wealth, and argues that within an overlapping-generations …

Aart Kraay · Jaume Ventura

This 2000 Quarterly Journal of Economics paper by Aart Kraay and Jaume Ventura reexamines a classic question -- how does the current account respond to a transitory income shock? -- and overturns the …

Cristina Arellano

In a small open economy where a risk-averse government borrows from risk-neutral lenders using only non-contingent one-period bonds, default happens in equilibrium and happens in *recessions* -- the …

Torsten Persson

Persson extends Diamond's (1965) overlapping-generations model of public debt to open economies, asking how a one-time, debt-financed tax cut to the currently young generation redistributes welfare …

Alberto Alesina · Guido Tabellini

This 1989 Journal of International Economics paper by Alberto Alesina and Guido Tabellini explains the simultaneous accumulation of public external debt and private capital flight observed in …

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 …

Andrew Atkeson

This 1991 Econometrica paper by Andrew Atkeson examines optimal international lending when a sovereign borrower can both repudiate its debt and privately choose whether to invest or consume borrowed …

Mauricio Barbosa-Alves · Javier Bianchi · César Sosa-Padilla

The paper extends the Cole-Kehoe (2000) sovereign rollover crisis model to include international reserves and derives the joint optimal management of sovereign debt and reserves in a small open …

Wenxin Du · Jesse Schreger

Emerging-market governments that borrow in their own currency still pay a measurable default premium: stripping out currency risk with cross-currency swaps leaves a "local currency credit spread" …

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 …

Yan Bai · Jing Zhang

A frictionless multi-country model implies no cross-country correlation between long-run savings and investment rates, so the Feldstein-Horioka finding really is a puzzle for it. Neither limited …

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, …

Jeremy Bulow · Kenneth Rogoff

A sovereign that can still hold assets abroad after defaulting can always replace any reputation-based loan contract with a sequence of cash-in-advance insurance contracts collateralised out of the …

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 …

Benjamin Hébert · Jesse Schreger

US court rulings in Republic of Argentina v. NML Capital moved the market-implied probability that Argentina would default on its restructured bonds without carrying any news about the Argentine …