We develop a dynamic model of sovereign default and renegotiation to study how expectations of default and debt restructuring in the near future affect the ex ante maturity structure of sovereign debts. This paper argues that the average maturity is shorter when a country is approaching...

Backus, Kehoe, and Kydland (International Real Business Cycles, JPE, 100(4),1992) documented several discrepancies between the observed post-war business cycles of developed countries and the predictions of a two-country, complete-market model. The main discrepancy termed as the “quantity...

A narrowing of the U.S. current account deficit through exchange rate movements is likely to entail a substantial depreciation of the dollar, as stressed in research by Obstfeld and Rogoff. We assess how the adjustment is affected by the high degree of financial integration in the world economy....

Current account crises in emerging markets are characterized by large increases in interest rates, big drops in output, and large real currency depreciations. Current models of crisis with financial frictions do not generate very large movements in these variables. Recent work has shown that the...

In spite of the concerns about “twin deficits†(fiscal and current account deficits) for the U.S., empirical evidence suggests that “twin divergence†is a more regular feature of the data: when the fiscal accounts worsen, the current account improves and vice versa. We thus...

Currency crises are usually associated with large real depreciations. In some countries real depreciations are perceived to be very costly("fear of floating"). In this paper we try to understand the reasons behind this fear. We first look at episodes of currency crises in the '90s and establish...

An unresolved issue in international macroeconomics is the apparent lack of risk-sharing across countries, which contradicts the prediction of models based on the assumption of complete markets. We asses the importance of international financial frictions in this issue by constructing an...

This paper builds a dynamic model of borrowing and default to study the term structure of sovereign bonds in emerging markets. The borrower in the model can buy short and long bonds at contingent prices that reflect the timing of default events. The model generates a yield curve that is upward...

In this paper, I argue that demographic factors play a central role in accounting for the trade deficit experienced by the U.S. during the last three decades. The main idea is that cross-country demographic differentials lead to adjustments in savings and investments which are associated with...