Search Results
Working Paper
U.S. Unconventional Monetary Policy and Transmission to Emerging Market Economies
We investigate the effects of U.S. unconventional monetary policies on sovereign yields, foreign exchange rates, and stock prices in emerging market economies (EMEs), and we analyze how these effects depend on country-specifc characteristics. We find that, although EME asset prices, mainly those of sovereign bonds, responded strongly to unconventional monetary policy announcements, these responses were not outsized with respect to a model that takes into account each country's time-varying vulnerability to U.S. interest rates affected by monetary policy shocks.
Working Paper
News, sovereign debt maturity, and default risk
Leading into a debt crisis, interest rate spreads on sovereign debt rise before the economy experiences a decline in productivity, suggesting that news about future economic developments may play an important role in these episodes. In a VAR estimation, a news shock has a larger contemporaneous impact on sovereign credit spreads than a comparable shock to labor productivity. A quantitative model of news and sovereign debt default with endogenous maturity choice generates impulse responses and a variance decomposition similar to the empirical VAR estimates. The dynamics of the economy after a ...
Working Paper
News, sovereign debt maturity, and default risk
Leading into a debt crisis, interest rate spreads on sovereign debt rise before the economy experiences a decline in productivity, suggesting that news about future economic developments may play an important role in these episodes. In a VAR estimation, a news shock has a larger contemporaneous impact on sovereign credit spreads than a comparable shock to labor productivity. A quantitative model of news and sovereign debt default with endogenous maturity choice generates impulse responses and a variance decomposition similar to the empirical VAR estimates. The dynamics of the economy after a ...
Working Paper
Policy Interventions in Sovereign Debt Restructurings
The wave of sovereign defaults in the early 1980s and the string of debt crises in the decades that followed have fostered proposals involving policy interventions in sovereign debt restructurings. A key question about these proposals that has proved hard to handle is how they in influence the behavior of creditors and debtors. We address such challenge by incorporating these policy proposals into a quantitative model in the tradition of Eaton and Gersovitz (1981) that includes renegotiation in sovereign debt restructurings. Critically, the model also endogenizes the choice of debt maturity, ...
Journal Article
The economics of sovereign defaults
Working Paper
On the cyclicality of the interest rate in emerging economy models: solution methods matter
We study the sovereign default model that has been used to account for the cyclical behavior of interest rates in emerging market economies. This model is often solved using the discrete state space technique with evenly spaced grid points. We show that this method necessitates a large number of grid points to avoid generating spurious interest rate movements. This makes the discrete state technique significantly more inefficient than using Chebyshev polynomials or cubic spline interpolation to approximate the value functions. We show that the inefficiency of the discrete state space ...
Working Paper
The Collateral Channel and Bank Credit
Our paper studies the role of the collateral channel for bank credit using confidential bank-firm-loan data. We estimate that for a 1 percent increase in collateral values,firms pledging real estate collateral experience a 12 basis point higher growth in banklending with higher sensitivities for more credit constrained firms. Higher real estatevalues boost firm capital expenditures and lead to lower unemployment and higheremployment growth and business creation. Our estimates imply that as much as 37percent of employment growth over the period from 2013 to 2019 can be attributed to the ...
Working Paper
Sovereign Default and the Choice of Maturity
This study develops a novel model of endogenous sovereign debt maturity choice that rationalizes various stylized facts about debt maturity and the yield spread curve: first, sovereign debt duration and maturity generally exceed one year, and co-move positively with the business cycle. Second, sovereign yield spread curves are usually non-linear and upward-sloped, and may become non-monotonic and inverted during a period of high credit market stress, such as a default episode. Finally, output volatility, sudden stops, impatience and risk aversion are key determinants of maturity, both in our ...
Briefing
Policies for Improving Sovereign Debt Restructurings
Recent sovereign default restructurings during the COVID-19 pandemic have reignited interest in research and policy suggestions for improving these restructuring episodes. Evidence for the effectiveness of these policies has largely come from empirical analysis of past episodes, but this type of analysis makes it difficult to explicitly evaluate the economic improvements from implementing these polices. We develop and calibrate a model that allows us to analyze the effects of the proposed policies.