How much of carry trade excess returns can be explained by the presence of disaster risk? To answer this question, we propose a simple structural model that includes both Gaussian and disaster risk premia and can be estimated even in samples that do not contain disasters. The model points to a...

This paper shows that politics matter in explaining defaults on external and domestic debt obligations. We explore a large number of political and macroeconomic variables using a nonparametric technique to predict safety from default. The advantage of this technique is that it is able to...

To check hyperinflation, Argentina pegged the peso at one US dollar in 1991. This stopped inflation in its tracks: but, with the rise of the dollar against the Euro and the substantial devaluation of the Brazilian real, the peso became increasingly over-valued leading to a significant...

The sovereign debt default and the linkages from banking and currency crisis have been rarely explored in the crisis literature. This study attempts to dive into this unexplored area by applying panel data binary choice model on a sample with 20 emerging countries having monthly observations for...

We examine the evolution of the Icelandic banking sector in its macroeconomic environment. The story culminates in the crisis of October 2008, when all three major banks in Iceland collapsed in three successive days. The country is still struggling to cope with the consequences. The paper...

The swiftness and devastating impact of recent financial crises have taken many market participants by surprise and pose challenges for economists seeking a theory of the onset of a crisis. We propose such a theory based on two features. The actions of diverse economic actors which undermine the...

This paper studies sharp reductions in current account deficits and large exchange rate depreciations in low- and middle-income countries. It examines which factors help predict the occurrence of a reversal or a currency crisis, and how these events affect macroeconomic performance. It finds...

This paper presents a simple model of currency crises, which is driven by the interplay between the credit constraints of private domestic firms and the existence of nominal price rigidities. The possibility of multiple equilibria, including a ‘currency crisis’ equilibrium with low output...

This Paper proposes a new framework for interpreting a currency crisis associated with a fiscal imbalance, which we find appropriate for the analysis of contemporary economies with outstanding public debt. Unlike the first-generation literature on speculative attacks, we do not assume that money...

We pursue the idea that a region presents a common ‘prospectus’ to investors and lenders. Specifically, we explore whether investors respond to regional developments, rather than to country-specific fundamentals. Such behaviour may be appropriate where regions are identified by common...