Capital and its sectoral allocation affect default incentives. Under general assumptions, default risk is decreasing in the total stock of capital and increasing in the share of capital allocated to non-tradable production. This implies that when competitive households make all investment...

I study how, in the presence of default risk, the Dutch disease amplifies an inefficiency in the sectoral allocation of capital. I develop a sovereign default model with production of tradable and non-tradable goods, and endowments of commodities. Default incentives increase when more capital is...

Capital and its sectoral allocation affect default incentives. Under general assumptions, default risk is decreasing in the total stock of capital and increasing in the share of capital allocated to non-tradable production. This implies that when competitive households make all investment...

We develop a sovereign default model with debt renegotiation in which interest-rate shocks affect default incentives through two mechanisms. The first is the standard mechanism through which higher rates tighten the budget constraint. The second rests on how risk-free rates affect lenders'...

We study how debt limits can be expansionary in economies facing sovereign risk. We develop a sovereign debt model with capital accumulation, long-term debt, and fiscal rules that features two distortions: debt dilution and a pecuniary externality of private investment on spreads. The optimal...

I study the impact of giant oil field discoveries on default risk. I document that interest rate spreads of emerging economies increase by 1.3 percentage points following a discovery of median size. I develop a sovereign default model with investment, three-sector production, and oil...

I study how, in the presence of default risk, the Dutch disease amplifies an inefficiency in the sectoral allocation of capital. I develop a sovereign default model with production of tradable and non-tradable goods, and endowments of commodities. Default incentives increase when more capital is...

We study how debt limits can be expansionary in economies facing sovereign risk. We develop a sovereign debt model with capital accumulation, long-term debt, and fiscal rules that features two distortions: debt dilution and a pecuniary externality of private investment on spreads. The optimal...

We develop a sovereign default model with debt renegotiation in which interest-rate shocks affect default incentives through two mechanisms. The first is the standard mechanism through which higher rates tighten the budget constraint. The second rests on how risk-free rates affect lenders'...

Studying the modern economic histories of the ten largest countries in South America and Mexico teaches us the lack of fiscal discipline has been at the root of most of the region's macroeconomic instability. The lack of fiscal discipline, however, takes various forms not measured in the primary...