Fed in Print

Abstract

The recent debt crises in Europe and the U.S. states feature similar sharp increases in spreads on government debt but also show important differences. In Europe, the crisis occurred at high government indebtedness levels and had spillovers to the private sector. In the United States, state government indebtedness was low, and the crisis had no spillovers to the private sector. We show theoretically and empirically that these different debt experiences result from the interplay between differences in the ability of governments to interfere in private external debt contracts and differences in the flexibility of state fiscal institutions.

Cristina Arellano & Andrew Atkeson & Mark L. J. Wright, External and Public Debt Crises, Federal Reserve Bank of Chicago, Working Paper Series WP-2015-5, 02 Jul 2015.

JEL Classification:

F3 - International Economics - - International Finance
H7 - Public Economics - - State and Local Government; Intergovernmental Relations
K1 - Law and Economics - - Basic Areas of Law

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.

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