We argue that emerging economies borrow short term due to the high risk premium charged by bondholders on long-term debt. First, we present a model where the debt maturity structure is the outcome of a risk sharing problem between the government and bondholders. By issuing long-term debt, the...

This paper is a first attempt at evaluating the determinants of the total interest rate differentials on government bonds between high yielders, namely Spain, Italy, Sweden, and Germany. In particular, we address the question of the relative importance of local and global factors in the...

Does financial development result in capital being reallocated more rapidly to industries where it is most productive? We argue that if this was the case, financially developed countries should see faster growth in industries with investment opportunities due to global demand and productivity...

Any security’s expected return can be decomposed into its “carry” and its expected price appreciation, where carry is a model-free characteristic that can be observed in advance. While carry has been studied almost exclusively for currencies, we find that carry predicts returns both in the...

The paper analyses the drivers of sovereign risk for 31 advanced and emerging economies during the European sovereign debt crisis. It shows that a deterioration in countries’ fundamentals and fundamentals contagion – a sharp rise in the sensitivity of financial markets to fundamentals –...

We develop and compute a dynamic equilibrium model where economies differ on the relative efficiency of financial intermediaries and, therefore on households portfolios and currency holdings. Our model economies have some of the features of the different financial structures in countries of the...

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...

Fluctuations in GDP are more synchronized internationally than fluctuations in consumption, and they remain so even between financially-integrated economies, where the ranking should in theory be the reverse. This Paper shows this happens because correlations in GDP fluctuations rise with...

This paper examines the depth and duration of the slump that invariably follows severe financial crises, which tend to be protracted affairs. We find that asset market collapses are deep and prolonged. On a peak-to-trough basis, real housing price declines average 35 percent stretched out over...

This Paper presents a general equilibrium currency crisis model of the 'third generation', in which the possibility of currency crises is driven by the interplay between private firms' credit-constraints and nominal price rigidities. Despite our emphasis on microfoundations, the model remains...