If interest rates (country spreads) rise, debt can rapidly be subject to a snowball effect, which then becomes self-fulfilling with regard to the fundamentals themselves. This is a market imperfection, because we cannot be confident that the unaided market will choose the ‘good equilibrium’...

If interest rates (country spreads) rise, debt can rapidly be subject to a snowball effect, which then becomes self-fulfilling with regard to the fundamentals themselves. This is a market imperfection, because we cannot be confident that the unaided market will choose the ‘good equilibrium’...

This paper revises and extends our previous (1986) analysis of rates of return on sterling and dollar foreign loans of the 1920s. It analyzes a larger sample of 250 dollar bonds and 125 sterling issues, covering the years 1920-9. Internal rates of return are adjusted for repurchases of...

The Paper sets out the principles that should underlie sovereign debt restructuring. It argues for a rules-based approach to achieve private sector involvement in restructuring. The rules must operate, however, in the context of an appropriate institutional framework with appropriate incentives....

This paper is the Introduction to a special issue of European Economy on `The Path of Reform in Central and Eastern Europe'. It discusses the sources of the current wave of `Europessimism': exogenous shocks, adjustment costs, sequencing errors, and other policy errors. This analysis may help in...

This paper discusses when and how to introduce foreign exchange convertibility in the process of transformation of the socialist centrally-planned economies into market economies based on private property. It elucidates the need for `robust sequencing' in a programme of economic reforms and the...

This paper discusses the EMS and proposals to move towards EMU in the context of recent theoretical and empirical work on international policy coordination. It treats two particular themes: asymmetry among EMS countries and its implications for policy coordination; and the coordination required...

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...

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...

We examine Iceland’s capital controls, which were imposed in October 2008 in order to prevent massive capital flight and a complete collapse of the exchange rate. The controls have not been lifted yet, primarily because of the risk of outflows of domestic holdings of the failed cross-border...