This paper studies the interaction between fiscal commitment and sovereign default risk in a model with optimal taxation government spending. A time-inconsistency problem arises our framework as cannot credibly commit to its future tax policies. As result, it chooses suboptimally low adjustments defaults too frequently. Introducing device policies can mitigate this improve government's borrowin...

We develop a general and efficient method for valuating credit derivatives based on multiple entities in an affine framework. This includes interdependence of market and credit risk, joint credit migration and counterparty default risk of multiple firms. As an application we provide closed form expressions for the joint distribution of default times, default correlations, and credit default spr...

Using bank CDS spreads, we examine three types of determinants Euro Area default risk in the period 2008–2019: characteristics related to new regulation, bank-sovereign nexus and monetary policy stance. We find that Basel 3 regulation improves banks’ profile since higher capital ratios more stable deposit funding contribute significantly lower spreads. confirm persistence interconnectedness sov...