The decade and a half of litigation that followed Argentina's sovereign bond default in 2001 ended with a great disturbance in the Force. A new creditor weapon had been uncloaked: The prospect of a court injunction requiring the sovereign borrower to pay those creditors that decline to...

Political risk is a significant determinant of bond yields and economic growth in both developed and emerging markets and we develop a debt sustainability analysis model with both channels using a country ratings proxy of political risk. Political risk also affects a sovereign's willingness to...

At the level of public discourse the debate surrounding European sovereign debt crises has become polarised between the need for greater levels of public spending cuts and privatisation (‘austerity') and the need to use government investment or reductions in regulatory policies to bring about...

Does fiscal austerity influence sovereign debt spreads in a state-dependent manner? To investigate this, we develop an endogenous sovereign default model that incorporates long-maturity debt, fiscal rules, and investment. We uncover novel insights in the Greek default. First, our model provides...

Along time the European Union (EU) has been pointed as the most succeeded example of regional integration. Now, this example has been cruelly shaken by the EZ (Euro Zone) crisis, originating increasing doubts about the integration process. It is evident that the proposed solutions for attacking...

During the pandemic, public debt in Latin America and the Caribbean rose to more than 70 percent of GDP, and countries are now attempting to lower debt ratios. We analyze past debt reduction episodes and find inflation and the real interest rate were the most frequent main drivers, while higher...

I build a model where creditworthy countries may use fiscal austerity to communicate their ability to repay sovereign debt and show that the signaling channel is active only for high levels of asymmetric information. The model generates a negative association between the amount of public...

We analyze fiscal rules within a Monetary Union in the presence of (i) asymmetric information about member states' potential output and, therefore, output gap and (ii) bail-out among member states. In our framework, bail-out lowers the scope for signalling (discrimination) by member states...

We analyze fiscal rules within a Monetary Union in the presence of (i) asymmetric information on member states' potential output and (ii) bail-out among member states. The first-best deficit is contingent on the cycle, that is, on member states' output gap. In the presence of asymmetric...

This chapter critically reviews the literature which explains why and under which circumstances governments accumulate more debt than it would be consistent with optimal fiscal policy. We also discuss numerical rules or institutional designs which might lead to a moderation of these distortions.