If interest rates (country spreads) rise, debt can rapidly be subject to a snowball effect, which then becomes self-fulfilling with regard to the fundamentals themselves. This is a market imperfection, because we cannot be confident that the unaided market will choose the ‘good equilibrium’...

If interest rates (country spreads) rise, debt can rapidly be subject to a snowball effect, which then becomes self-fulfilling with regard to the fundamentals themselves. This is a market imperfection, because we cannot be confident that the unaided market will choose the ‘good equilibrium’...

The Paper sets out the principles that should underlie sovereign debt restructuring. It argues for a rules-based approach to achieve private sector involvement in restructuring. The rules must operate, however, in the context of an appropriate institutional framework with appropriate incentives....

We argue that emerging economies borrow short term due to the high risk premium charged by bondholders on long-term debt. First, we present a model where the debt maturity structure is the outcome of a risk sharing problem between the government and bondholders. By issuing long-term debt, the...

Stanley Fischer is a rarity among economic policymakers. He came to the policy world as an internationally recognized intellectual leader on macroeconomic theory and policy. He confronted numerous emerging market crises, including the globally systemic Asian crisis, as the IMF’s First Deputy...

We examine the first widespread use of capital controls in response to a global or regional financial crisis. In particular, we analyze whether capital controls mitigated capital flight in the 1930s and assess their causal effects on macroeconomic recovery from the Great Depression. We find...

In the 1990s, Sudden Stops in emerging markets were a harbinger of the 2008 global financial crisis. During these Sudden Stops, countries lost access to credit, which caused abrupt current account reversals, and suffered severe recessions. This article reviews a class of models that yield...

A considerable literature has examined the causes, consequences, and policy responses to surges in international capital flows. A related strand of papers has attempted to catalog current account reversals and capital account "sudden stops." This paper offers an encompassing approach with an...

The stylised facts of currency crises in emerging markets include output contraction coming hard on the heels of devaluation, with a prominent role for the adverse balance-sheet effects of liability dollarisation. In the light of the South East Asian experience, we propose an eclectic blend of...

The Greek debt restructuring of 2012 stands out in the history of sovereign defaults. It achieved very large debt relief – over 50 per cent of 2012 GDP – with minimal financial disruption, using a combination of new legal techniques, exceptionally large cash incentives, and official sector...