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Report
Managing the Maturity Structure of Marketable Treasury Debt: 1953-1983
Garbade, Kenneth D. (2020-07-01)
This paper examines the evolution of the maturity structure of marketable Treasury debt from 1953 to 1983. Average maturity contracted erratically from 1953 to 1960, expanded through mid-1965, contracted again through late 1975, and then expanded into the early 1980s. What accounts for these broad trends? In particular, what were the maturity objectives of Treasury debt managers? Were they able to achieve their objectives? Why or why not?
Staff Reports , Paper 936

Working Paper
Bank crises and sovereign defaults in emerging markets: exploring the links
Balteanu, Irina; Erce, Aitor (2014-06-01)
This paper provides a set of stylized facts on the mechanisms through which banking and sovereign distress feed into each other, using a large sample of emerging economies over three decades. We first define ?twin crises? as events where banking crises and sovereign defaults combine, and further distinguish between those banking crises that end up in sovereign debt crises, and vice-versa. We then assess what differentiates ?single? episodes from ?twin? ones. Using an event analysis methodology, we study the behavior around crises of variables describing the balance sheet interconnection ...
Globalization Institute Working Papers , Paper 184

Journal Article
Fiscal Sustainability: A Cross-Country Analysis
Bi, Huixin (2017-10)
Since the global financial crisis, public debt has risen rapidly in many advanced and emerging market economies. Every country faces a fiscal limit at which taxes and spending can no longer adjust to stabilize debt. But quantifying fiscal limits can be challenging. Different countries have different capacities to service their debt. Moreover, two countries with similar debt levels may face drastically different default risks. {{p}} Huixin Bi introduces a new, country-specific framework of fiscal limits to quantify the maximum level of debt a government can sustain given its economic and ...
Economic Review , Issue Q IV , Pages 5-35

Report
Federal Reserve Participation in Public Treasury Offerings
Garbade, Kenneth D. (2019-12-01)
This paper describes the evolution of Federal Reserve participation in public Treasury offerings. It covers the pre-1935 period, when the Fed participated on an equal footing with other investors in exchange offerings priced by Treasury officials, to its present-day practice of reinvesting the proceeds of maturing securities with “add-ons” priced in public auctions in which the Fed does not participate. The paper describes how the Federal Reserve System adapted its operating procedures to comply with the 1935 limitations on its Treasury purchases, how it modified its operating procedures ...
Staff Reports , Paper 906

Working Paper
History Remembered: Optimal Sovereign Default on Domestic and External Debt
D'Erasmo, Pablo; Mendoza, Enrique G. (2019-07-22)
Infrequent but turbulent overt sovereign defaults on domestic creditors are a ?for- gotten history? in macroeconomics. We propose a heterogeneous-agents model in which the government chooses optimal debt and default on domestic and foreign creditors by balancing distributional incentives versus the social value of debt for self-insurance, liquidity, and risk-sharing. A rich feedback mechanism links debt issuance, the distribution of debt holdings, the default decision, and risk premia. Calibrated to Eurozone data, the model is consistent with key long-run and debt-crisis statistics. Defaults ...
Working Papers , Paper 19-31

Working Paper
Climate Defaults and Financial Adaptation
Phan, Toan; Schwartzman, Felipe (2023-03)
We analyze the relationship between climate-related disasters and sovereign debt crises using a model with capital accumulation, sovereign default, and disaster risk. We find that disaster risk and default risk together lead to slow post-disaster recovery and heightened borrowing costs. Calibrating the model to Mexico, we find that the increase in cyclone risk due to climate change leads to a welfare loss equivalent to a permanent 1% consumption drop. However, financial adaptation via catastrophe bonds and disaster insurance can reduce these losses by about 25%. Our study highlights the ...
Working Paper , Paper 23-06

Working Paper
Is Inflation Default? The Role of Information in Debt Crises
Bassetto, Marco; Galli, Carlo (2017-03-17)
We consider a two-period Bayesian trading game where in each period informed agents decide whether to buy an asset ("government debt") after observing an idiosyncratic signal about the prospects of default. While second-period buyers only need to forecast default, first-period buyers pass the asset to the new agents in the secondary market, and thus need to form beliefs about the price that will prevail at that stage. We provide conditions such that coarser information in the hands of second-period agents makes the price of debt more resilient to bad shocks not only in the last period, but ...
Working Paper Series , Paper WP-2017-6

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
Financial market implications of the federal debt paydown
Fleming, Michael J. (2001-03-01)
U.S. Treasury securities fill several crucial roles in financial markets: they are a risk-free benchmark, a reference and hedging benchmark, and a reserve asset to the Federal Reserve and other financial institutions. Many of the features that make the Treasury market an attractive benchmark and reserve asset are likely to be adversely affected by the paydown of the federal debt, and recent developments suggest that this may be happening already. Market participants are responding by moving away from Treasuries as a reference and hedging benchmark toward agency debt securities, corporate debt ...
Staff Reports , Paper 120

Report
A Framework for Studying the Monetary and Fiscal History of Latin America, 1960–2017
Kehoe, Timothy J.; Sargent, Thomas J.; Nicolini, Juan Pablo (2020-07-21)
We develop a conceptual framework for analyzing the interactions between aggregate fiscal policy and monetary policy. The framework draws on existing models that analyze sovereign debt crises and balance-of-payments crises. We intend this framework as a guide for analyzing the monetary and fiscal history of a set of eleven major Latin American countries—Argentina, Brazil, Bolivia, Chile, Colombia, Ecuador, Mexico, Paraguay, Peru, Uruguay, and Venezuela—from the 1960s until now.
Staff Report , Paper 607

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