Financial crises are costly. In the recent crisis in Argentina, for example, from the onset of sovereign debt repayment difficulties at the end of 2000 until the beginning of 2002, real GDP dropped by almost 20%. A simple aggregate growth accounting exercise suggests that a large part of this...

This paper analyzes a general equilibrium model with limited commitment and production. There are a large number of infinitely-lived, risk-averse agents who invest in physical and human capital, and production exhibits constant-returns-to-scale with respect to these two input factors....

Sovereign defaults are time consuming and costly to resolve ex post. But these costs also improve borrowing incentives ex ante. What is the optimal tradeoff between efficient borrowing ex ante and the costs of default ex post? What policy reforms, from collective action clauses to an...