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Working Paper
Leverage constraints and the international transmission of shocks
Devereux, Michael B. (2010)
Recent macroeconomic experience has drawn attention to the importance of interdependence among countries through financial markets and institutions, independently of traditional trade linkages. This paper develops a model of the international transmission of shocks due to interdependent portfolio holdings among leverage-constrained financial institutions. In the absence of leverage constraints, international portfolio diversification has no implications for macroeconomic comovements. When leverage constraints bind, however, the presence of diversified portfolios in combination with these ...
Globalization Institute Working Papers , Paper 45

Working Paper
Interpreting the Pari Passu Clause in Sovereign Bond Contracts: It's All Hebrew (and Aramaic) to Me
Wright, Mark L. J. (2014-05)
In this comment, we take a helicopter tour of the history of notions of ?equality? and ?justice? in sovereign debt restructuring in particular, and in the division of property more generally, and show that these concerns have existed for centuries, if not millennia. We argue that the issue at stake in the interpretation of the pari passu clause is not so much the treatment of holders of identical claims?it is now customary to treat them identically?but whether the holders of different claims should be treated differently. We show that exists a customary ?principle of differentiation? that ...
Working Paper Series , Paper WP-2014-6

Working Paper
Improving Sovereign Debt Restructurings
Dvorkin, Maximiliano; Sanchez, Juan M.; Sapriza, Horacio; Yurdagul, Emircan (2021-10-01)
The wave of sovereign defaults in the early 1980s and the string of debt crises in subsequent decades have fostered proposals involving policy interventions in sovereign debt restructurings, and the recent global pandemic crisis has further reignited this discussion. A key question about these policy proposals for debt restructurings that has proved hard to handle is how they influence the behavior of creditors and debtors. We address this challenge by evaluating policy proposals in a quantitative sovereign default model that incorporates two essential features: maturity choice and debt ...
Working Papers , Paper 2019-36

Working Paper
Efficient Computation with Taste Shocks
Gordon, Grey (2019-09-11)
Taste shocks result in nondegenerate choice probabilities, smooth policy functions, continuous demand correspondences, and reduced computational errors. They also cause significant computational cost when the number of choices is large. However, I show that, in many economic models, a numerically equivalent approximation may be obtained extremely efficiently. If the objective function has increasing differences (a condition closely tied to policy function monotonicity) or is concave in a discrete sense, the proposed algorithms are O(n log n) for n states and n choice--a drastic improvement ...
Working Paper , Paper 19-15

Working Paper
Distributional Incentives in an Equilibrium Model of Domestic Sovereign Default
D'Erasmo, Pablo; Mendoza, Enrique G. (2016-08-09)
Europe?s debt crisis resembles historical episodes of outright default on domestic public debt about which little research exists. This paper proposes a theory of domestic sovereign default based on distributional incentives affecting the welfare of risk-averse debt and non-debtholders. A utilitarian government cannot sustain debt if default is costless. If default is costly, debt with default risk is sustainable, and debt falls as the concentration of debt ownership rises. A government favoring bondholders can also sustain debt, with debt rising as ownership becomes more concentrated. These ...
Working Papers , Paper 16-23

Report
Banking across borders
Niepmann, Friederike (2012-10-01)
The international linkages between banks play a crucial role in today?s global economy. Existing models explain these links on the basis of portfolio theory, in which banks diversify lending. These models have found only limited empirical support and do not speak to many relevant dimensions of the data. For example, they do not address heterogeneity in the degree to which banking sectors fund their foreign operations locally in foreign markets. This paper proposes an alternative theory to explain banking across borders that is based on elements of international trade theory. In the model, ...
Staff Reports , Paper 576

Working Paper
Debt, inflation and growth robust estimation of long-run effects in dynamic panel data models
Chudik, Alexander; Pesaran, M. Hashem; Raissi, Mehdi; Mohaddes, Kamiar (2013-11-01)
This paper investigates the long-run effects of public debt and inflation on economic growth. Our contribution is both theoretical and empirical. On the theoretical side, we develop a cross-sectionally augmented distributed lag (CS-DL) approach to the estimation of long-run effects in dynamic heterogeneous panel data models with cross-sectionally dependent errors. The relative merits of the CS-DL approach and other existing approaches in the literature are discussed and illustrated with small sample evidence obtained by means of Monte Carlo simulations. On the empirical side, using data on a ...
Globalization Institute Working Papers , Paper 162

Journal Article
Recent developments in cross-border investment in securities
Griever, William L.; Bertaut, Carol C. (2004-01)
Securities have replaced bank lending in recent years as the primary means through which funds are invested internationally, and in the process, the share of U.S. securities owned by foreigners has grown markedly. Between 1974 and 2002, the proportion of the value of outstanding U.S. long-term securities (equities and long-term debt) that was foreign-owned increased from about 5 percent to about 12 percent. At the same time, U.S. holdings of foreign long-term securities also increased, although their growth did not match the rapid growth in foreign holdings of U.S. securities. At $1.8 ...
Federal Reserve Bulletin , Volume 90 , Issue Win

Working Paper
Domestic Policies and Sovereign Default
Espino, Emilio; Sanchez, Juan M.; Martin, Fernando M.; Kozlowski, Julian (2021-05-20)
This paper incorporates fiscal and monetary policies into a model of sovereign default. In addition to the standard present-bias vs default-risk tradeoff faced by governments when choosing debt, distortionary policy instruments introduce an intertemporal tradeoff, which may mitigate or exacerbate the incentives to accumulate debt. Taxation, the money growth rate and currency depreciation all increase with the level of debt. The model reproduces standard business cycle statistics, the response of spreads, inflation and growth to terms-of-trade shocks, and the cyclical properties of fiscal and ...
Working Papers , Paper 2020-017

Working Paper
Cross-Border Bank Flows and Monetary Policy
Paligorova, Teodora; Zlate, Andrei; Correa, Ricardo; Sapriza, Horacio (2018-12-03)
We analyze the impact of monetary policy on bilateral cross-border bank flows using the BIS Locational Banking Statistics between 1995 and 2014. We find that monetary policy in the source countries is an important determinant of cross-border bank flows. In addition, we find evidence in favor of a cross-border bank portfolio channel. As relatively tighter monetary conditions in source countries erode the net worth and collateral values of domestic borrowers, banks reallocate their claims toward safer foreign counterparties. The cross-border reallocation of credit is more pronounced for banks ...
International Finance Discussion Papers , Paper 1241

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