Search Results

SORT BY: PREVIOUS / NEXT
Keywords:sovereign debt 

Working Paper
Policy Rules and Large Crises in Emerging Markets

Emerging countries have increasingly adopted rules to discipline government policy. The COVID-19 shock lead to widespread suspension and modification of these rules. We study rules and flexibility in a sovereign default model with domestic fiscal and monetary policies and long-term external debt. We find welfare gains from adopting monetary targets and debt limits during normal times. Though government policy cannot itself counteract fundamental shocks hitting the economy, the adoption of rules has a significant impact on policy, macroeconomic outcomes and welfare during large, unexpected ...
Working Papers , Paper 2022-018

Working Paper
Domestic Policies and Sovereign Default

A model with two essential elements, sovereign default and distortionary fiscal and monetary policies, explains the interaction between sovereign debt, default risk and inflation in emerging countries. We derive conditions under which monetary policy is actively used to support fiscal policy and characterize the intertemporal tradeoffs that determine the choice of debt. We show that in response to adverse shocks to the terms of trade or productivity, governments reduce debt and deficits, and increase inflation and currency depreciation rates, matching the patterns observed in the data for ...
Working Papers , Paper 2020-017

Are Developing Countries Facing a Possible Debt Crisis?

An analysis looks at whether developing countries are facing pressures similar to those in the 1980s, when higher interest rates helped trigger a wave of defaults in sovereign debt.
On the Economy

Working Paper
Policy Rules and Large Crises in Emerging Markets

Emerging countries have increasingly adopted rules to discipline government policy. The COVID-19 shock led to widespread suspension and modification of these rules. We study rules and flexibility in a sovereign default model with domestic fiscal and monetary policies and long-term external debt. We find welfare gains from adopting monetary targets and debt limits during normal times. Though government policy cannot itself counteract fundamental shocks hitting the economy, the adoption of rules has a significant impact on policy, macroeconomic outcomes and welfare during large, unexpected ...
Working Papers , Paper 2022-018

Working Paper
Sovereign Debt and Credit Default Swaps

ow do credit default swaps (CDS) affect sovereign debt markets? The answer depends crucially on trading frictions, risk-sharing, arbitrage violations, and spillovers from secondary to primary markets. We propose a sovereign default model where investors trade bonds and CDS over the counter via directed search. CDS affect bond prices through several channels. First, CDS act as a synthetic bond. Second, CDS reduce bond-investing risks, allowing exposure to be unwound. Third, CDS availability increases trading profitability, which induces entry and reduces trading costs. Last, these direct ...
Working Paper , Paper 23-05

Working Paper
Policy Rules and Large Crises in Emerging Markets

Emerging countries have increasingly adopted rules to discipline government policy. The COVID-19 shock lead to widespread suspension and modification of these rules. We study rules and flexibility in a sovereign default model with domestic fiscal and monetary policies and long-term external debt. We find welfare gains from adopting monetary targets and debt limits during normal times. Though government policy cannot itself counteract fundamental shocks hitting the economy, the adoption of rules has a significant impact on policy, macroeconomic outcomes and welfare during large, unexpected ...
Working Papers , Paper 2022-018

Journal Article
Research Spotlight: Adapting Sovereign Debt to Climate Change

As stronger hurricanes become more common due to climate change, understanding what factors drive recovery is increasingly important. How quickly a country recovers is influenced by its ability to attract foreign capital — making recovery challenging for emerging economies, as investors are more reluctant to invest in countries that are more likely to default on loans. The challenge for these countries to secure capital suggests an area for financial instruments to be adapted to better suit their needs. To gain a clearer understanding of the interplay between climate-related disasters and ...
Econ Focus , Volume 23 , Issue 2Q , Pages 8

Working Paper
Policy Rules and Large Crises in Emerging Markets

Emerging economies have adopted fiscal and monetary rules to discipline government policy. We study the value and macroeconomic implications of rules and flexibility within a sovereign-default model that incorporates domestic fiscal and monetary policies and long-term external debt. Adopting monetary targets and debt limits during normal times yields welfare gains. Suspending rules can significantly influence policy, macroeconomic outcomes, and welfare during large, unforeseen crises. The gains from flexibility depend on how quickly policymakers are able to reimpose rules after the crisis.
Working Papers , Paper 2022-018

FILTER BY Series

FILTER BY Content Type

FILTER BY Author

FILTER BY Jel Classification

F34 5 items

E52 4 items

E62 4 items

F41 4 items

G15 4 items

G12 1 items

show more (1)

FILTER BY Keywords

PREVIOUS / NEXT