This paper discusses several determinants of the differential between yields on Italian government securities and yields on foreign government securities. We concentrate on expectations of (at least partial) insolvency, tax factors and exchange rate expectations. The evidence suggests that most...

Is the pricing of sovereign risk linear during bearish episodes? Or can initial shocks on economic fundamentals be exacerbated by endogenous factors that create nonlinearities? We test for nonlinearities in the sovereign bond market of European peripheral countries during the debt crisis and...

This paper analyses four popular themes in the debate about the transition to monetary union: (a) fiscal discipline creating gains in credibility; (b) there being perceptible risk of a bail out for the highly indebted countries; (c) budgets being successfully cut to the required 3% limit in...

We analyze holdings of public bonds by over 20,000 banks in 191 countries, and the role of these bonds in 20 sovereign defaults over 1998-2012. Banks hold many public bonds (on average 9% of their assets), particularly in less financially-developed countries. During sovereign defaults, banks...

We develop a sovereign debt model with official and private creditors where default risk depends on both the level and the composition of liabilities. Higher exposure to official lenders improves incentives to repay but carries extra costs, such as reduced ex-post flexibility. The model implies...

We examine the determinants of external crises, focusing on the role of foreign liabilities and their composition. Using a variety of statistical tools and comprehensive data spanning 1970-2011, we find that the ratio of net foreign liabilities to GDP is a significant crisis predictor. This is...

This paper investigates the impact of sovereign defaults on the ability of the corporate sector in emerging nations to finance itself abroad. The hypothesis here is that defaults have a negative spillover effect on the private sector through credit rationing. We explore a novel dataset covering...

Debt mutualisation through Eurobonds has been proposed as a solution to the Euro crisis. Although this proposal found some support, it also attracted strong criticisms as it risks raising the spreads for strong countries, diluting legacy debt and promoting moral hazard by weak countries. Because...

This paper explores the dominant role of politics in decisions made by euro area governments during the crisis. Decisions that appear to have been driven by local political considerations to the detriment of the euro area as a whole are discussed. The domination of politics over economics has...

This paper considers the economic and political drivers of sovereign default, focusing on countries rich enough to render sovereign default a ‘won’t pay’ rather than a ‘can’t pay’ phenomenon. Unlike many private contracts, sovereign debt contracts rely almost exclusively on...