The authors use recent events in Greece to illustrate that official bailouts tend not to work when countries have fundamental fiscal ('insolvency') problems and construct a two-period numerical example to explain why this should not come as a surprise

Institutional lending in crisis is evaluated from a theoretical point of view. First, the share of senior loans in new loans is irrelevant under a given probability distribution of the country's resources. Second, seniority may partially alleviate the inefficiency of debt contracts when the...

Institutional lending in crisis is evaluated from a theoretical point of view. First, the share of senior loans in new loans is irrelevant under a given probability distribution of the country's resources. Second, seniority may partially alleviate the inefficiency of debt contracts when the...