Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of San Francisco
Working Paper Series
Sovereign debt, volatility, and insurance
Kenneth M. Kletzer
Abstract

External debt increases the vulnerability of indebted emerging market economies to macroeconomic volatility and financial crises. Capital account reversals often lead sovereign debt repayment crises that are only resolved after prolonged and difficult debt restructuring. Foreign indebtedness exacerbates domestic financial distress in crisis, increasing both the incidence and severity of emerging market crises. These outcomes contrast with the presumption that access to international capital markets should help countries to smooth domestic consumption and investment against macroeconomic shocks. This paper uses models of sovereign to reconsider the role of sovereign debt renegotiation for international risk sharing and presents an approach for analyzing contractual innovations for implementing contingent debt repayments. The financial innovations that might allow risk-sharing rather than risk-inducing capital flows go beyond contractual changes that ease debt renegotiation by separating contingent payments from bonds.


Download Full text
Cite this item
Kenneth M. Kletzer, Sovereign debt, volatility, and insurance, Federal Reserve Bank of San Francisco, Working Paper Series 2006-05, 2005.
More from this series
JEL Classification:
Subject headings:
Keywords: Debts; External ; Financial crises ; Insurance
For corrections, contact Noah Pollaczek ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal