Public debt, bailouts, and common bonds

The Political Economy of Debt Moratoria, Bailouts and Bankruptcy

This paper develops a simple dynamic general equilibrium model of an agricultural economy, in which poor farmers borrow wheat from rich farmers to invest on their land. Because wheat output is stochastic (we allow for both idiosyncratic and aggregate shocks), there may be default ex-post. We compare equilibria in this economy with and without political intervention. Intervention is decided thro...

The Dynamics of Sovereign Debt Crises and Bailouts

Inspired by the European debt crisis of 2010, this paper provides a theoretical framework to analyze the dynamics of the sovereign debt ∗This is preliminary indeed. The results have not yet been checked with sufficient care, despite multiple presentations of earlier drafts. We are thankful to our discussants so far. We are particularly thankful for an insightful discussion by Fernando Broner at...

Valuation of defaultable bonds and debt restructuring

Liquidity, Government Bonds and Sovereign Debt Crises

This paper analyses the European financial crisis through the lens of the sovereign bond liquidity. Using novel data we show that government securities are the prime collateral in the European repo market, which is becoming a primary source of funding for the banking system in the Euro area. We document that the repo haircuts on peripheral government bonds sharply increased during the crisis, r...

Fiscal decentralization and public debt

Excessive borrowing by subnational governments due to soft budget constraints and intergovernmental coordination failures might be one of the perils of decentralization. Despite a large body of case studies, empirical investigations on whether decentralization increases consolidated public debt levels are still scarce. This paper contributes to the literature by exploring econometrically for se...