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Working Paper
Catalytic IMF? a gross flows approach
The financial assistance the International Monetary Fund (IMF) provides is assumed to catalyze fresh investment. Such a catalytic effect has, however, proven empirically elusive. This paper deviates from the standard approach based on the net capital inflow to study instead the IMF?s catalytic role in the context of gross capital flows. Using fixed-effects regressions, instrumental variables and local projection methods, we find significant differences in how resident and foreign investors react to IMF programs as well as in inward and outward flows. While IMF lending does not catalyze ...
Working Paper
Selective Sovereign Defaults
Governments issue debt both domestically and abroad. This heterogeneity introduces the possibility for governments to operate selective defaults that discriminate across investors. Using a novel dataset on the legal jurisdiction of sovereign defaults that distinguishes between defaults under domestic law and default under foreign law, we show that selectiveness is the norm and that imports, credit, and output dynamics are different around different types of default. Domestic defaults are associated with contractions of credit and are more likely in countries with smaller credit markets. In ...
Working Paper
Bank and sovereign risk feedback loops
Measures of Sovereign and Bank Risk show occasional bouts of increased correlation, setting the stage for vicious and virtuous feedback loops. This paper models the macroeconomic phenomena underlying such bouts using CDS data for 10 euro-area countries. The results show that Sovereign Risk feeds back into Bank Risk more strongly than vice versa. Countries with sovereigns that are more indebted or where banks have a larger exposure to their own sovereign, suffer larger feedback loop effects from Sovereign Risk into Bank Risk. In the opposite direction, in countries where banks fund their ...
Working Paper
A Journey in the History of Sovereign Defaults on Domestic-Law Public Debt
We introduce a novel database on sovereign defaults that involve public debt instruments governed by domestic law. By systematically reviewing a large number of sources, we identify 134 default and restructuring events of domestic debt instruments, in 52 countries from 1980 to 2018. Domestic-law defaults are a global phenomenon. Over time, they have become larger and more frequent than foreign-law defaults. Domestic-law debt restructurings proceed faster than foreign ones, often through extensions of maturities and amendments to the coupon structure. While face value reductions are rare, ...
Working Paper
Official Debt Restructurings and Development
Despite the frequency of official debt restructurings, little systematic evidence has been produced on their characteristics and implications. Using a dataset covering more than 400 Paris Club agreements, this paper fills that gap. It provides a comprehensive description of the evolving characteristics of these operations and studies their impact on debtors. The progressive introduction of new terms of treatment gradually turned the Paris Club from an institution primarily concerned with preserving creditors? claims into an instrument to foster development in the world?s poorer nations, among ...
Working Paper
Banking on seniority: the IMF and the sovereign’s creditors
The programs designed by the International Monetary Fund during the Global Financial Crisis have shown more awareness of the importance of domestic demand for the prospects of economic recovery. Yet, the IMF has continued to do little about the late payments made by governments to domestic creditors and suppliers. In contrast, the greater protection historically awarded by the IMF to foreign creditors has endured throughout the recent crisis. The paper suggests that, in order to adequately balance foreign creditor seniority and growth objectives, the IMF may sometimes need to emphasize ...
Working Paper
Sovereign debt restructurings and the IMF: implications for future official interventions
This paper studies the role played by the IMF during sovereign debt restructurings and extracts lessons for future official interventions. To do so, I compare twelve recent debt restructurings. I begin by detailing the main features (?restructuring strategies?) of each episode. I then analyze the involvement of the Fund and relate it to the above-cited strategies. Despite the wide heterogeneity both in restructuring strategies and in the scope of IMF?s involvement, the Fund exerted a substantial influence. This influence came, not only through the provision of official finance and by setting ...
Working Paper
Bank crises and sovereign defaults in emerging markets: exploring the links
This paper provides a set of stylized facts on the mechanisms through which banking and sovereign distress feed into each other, using a large sample of emerging economies over three decades. We first define ?twin crises? as events where banking crises and sovereign defaults combine, and further distinguish between those banking crises that end up in sovereign debt crises, and vice-versa. We then assess what differentiates ?single? episodes from ?twin? ones. Using an event analysis methodology, we study the behavior around crises of variables describing the balance sheet interconnection ...
Working Paper
Selective sovereign defaults
Breaches in intercreditor equity are common ground during sovereign debt restructurings. In this paper I explore residence-based breaches by studying patterns of discrimination between residents and foreign creditors during debt restructurings. I frame the analysis with a simple model of a government's strategic decision to differentiate between the servicing of its domestic and its external debt. In the model, the basic trade-off facing the authorities is to default on external debt and in so doing restricting private access to international capital markets or to default on domestic debt, ...
Working Paper
Sovereign debt crises: could an international court minimize them?
This paper discusses the merits of the statutory approach to sovereign debt crises. It presents a model of sovereign debt roll-overs where, in the event of a liquidity crisis, a Sovereign Bankruptcy Court has powers to declare a standstill on debt payments. The model shows the ability of the Court to mitigate the coordination problem inherent to roll-overs in sovereign debt markets. Moreover, the scale of the coordination problem is reduced regardless of the quality of the information handled by the Court. The mere existence of the Court forces investors to focus on its course of action ...