Negotiations to restructure sovereign debts are protracted, taking on average almost 8 years to complete. In this paper we construct a new database (the most extensive of its kind covering ninety recent sovereign defaults) and use it to document that these negotiations are also ineffective in both repaying creditors and reducing the debt burden countries face. Specifically, we find that credito...

How will sovereign debt markets evolve in the 21st century? We survey how literature has responded to eurozone crisis, placing “lessons learned” historical perspective. The crisis featured: (i) return of problems advanced economies; (ii) a bank-sovereign “doom-loop” and propagation risk households firms; (iii) roll-over self-fulfilling dynamics; (iv) severe distress without outright defaults; (...

We show how to decentralize constrained efficient allocations that arise from enforcement constraints between sovereign nations. In a pure exchange economy, these allocations can be decentralized with private agents acting competitively and taking as given government default decisions on foreign debt. In an economy with capital, these allocations can be decentralized if the government can tax c...

In this paper, cointegration relationships among 26 global stock market indices over the periods of sub-prime and European debt crisis and their influence rank are investigated by constructing and analyzing directed and weighted cointegration networks. The obtained results are shown as follows: the crises have changed cointegration relationships among stock market indices, their cointegration r...

We use a dynamic game model of a two-country monetary union to study the impacts of an exogenous fall in aggregate demand, the resulting increase in public debt, and the consequences of a sovereign debt “haircut” for a member country or bloc of the union. In this union, the governments of participating countries pursue national goals when deciding on fiscal policies, while the common central ba...

We characterize optimal taxation of foreign capital and optimal sovereign debt policy in a small open economy where the government cannot commit to policy, seeks to insure a risk averse domestic constituency, and is more impatient than the market. Optimal policy generates long-run cycles in both sovereign debt and foreign direct investment in an environment in which the first best capital stock...

How should fiscal policy be conducted in the presence of default risk? We address this question using a sovereign default model with nominal rigidities. An increase in government spending during a recession stimulates economic activity and reduces unemployment. Because the government lacks commitment to future debt repayments, expansionary fiscal policy increases sovereign spreads, making the f...

As the Eurozone crisis drags on, it is evident that a part of the problem lies in the architecture of debt and its liabilities within the Eurozone and, more generally, the European Union. This paper argues that a large part of the problem can be mitigated by permitting appropriately-structured cross-country liability for sovereign debt incurred by individual nations within the European Union. I...