The economic costs and impacts of a government default in emerging markets and the predictive validity of logit models

The present dissertation tackles the topic government debt and comprises three papers. The first paper with the title "The Economic Impacts of a Government Default in a Stochastic Overlapping Generations Model under Homogenous Investor Expectations" analyses the short-term effects of a government default in the framework of a closed economy. A government default occurs, where public debt to GDP ratio exceeds a predefined, exogenous threshold level. The outcomes of the model reveal that in the aftermath of the debt crisis market participants reallocate their portfolio toward equity at the expense of the bond exposure and the induced investment boom favors a swift economic recovery. The second paper named "Fiscal Policy and Short Term Default Probability of Emerging Markets" tackles the question whether expansive or restrictive fiscal policy reduces short-term default probability. Throughout the theoretical discussion, the study compares the Keynesian multiplier effect with the wealth effect. The results of the econometric research reveal that under normal economic circumstances the multiplier effect dominates, whereas under extreme economic situations the wealth effect is prevailing. The third paper with the title "The Costs of a Government Default" analyses the economic costs of a public default. In specific, the study computes econometrically, how a public default affects the indirect costs of credit, i.e. the credit ratings, the economic growth and international trade. The outcomes reveal that a public debt crisis has negative and significant impacts on all mentioned areas above.