Credit derivatives allow for buying protection on corporate debt, but also on sovereign debt. In this paper we examine the implications for sovereign debt crises. We show that the availability of credit protection lowers ex-ante debtor moral hazard by allowing a bondholder to improve his...

The universal adoption of collective action clauses (CACs) was the most promising reform proposal in recent debates on sovereign debt crisis management. Academics and the public sector had been promoting CACs since 1995, yet market practice did not begin to change until 2003. This delay is often...

The European Monetary Union is characterized by a crisis of governance, this has become more evident with the crisis of the euro which has shown the weaknesses of the European institutions and stressed the heterogeneity of member countries. The global financial crisis struck the euro area very...

One solution to the euro crisis as a debt crisis can be found in stimulating economic growth. The Troika has proposed measures to deregulate labor markets in Southern EU countries: a longer working week, relaxation of job dismissal laws, raising the age of retirement. A longer working week for...

A graph representation of the financial relations in a given monetary structure is proposed. It is argued that the graph of debt-liability relations is naturally organized and simplified into a tree structure, around banks and a central bank. Indeed, this optimal graph allows to perform payments...

Speaking before the IDB Board of Directors, Carmen Reinhart discussed the syndrome of “debt intolerance,” whereby countries with weak institutional structures and problematic political systems borrow in order to avoid difficult fiscal decisions but subsequently find themselves unwilling or...

In focusing on the 24 month window prior to the onset of the crisis, the criteria for ranking the indicators presented in our related work does not distinguish between a signal given 12 months prior to the crisis and one given one month prior to the crisis. In what follows we examine this issue,...

Predicting the timing of currency and banking crises is likely to remain an elusive task for academics, financial market participants, and policymakers. Few foresaw the Asian crises and fewer still could have imagined their severity. However, recent events have highlighted the importance of...

We model a typical Asian-crisis-economy using dynamic general equilibrium tech-niques. Exchange rates obtain from nontrivial fiat-currencies demands. Sudden stops/bank-panics are possible, and key for evaluating the merits of alternative ex-change rate regimes. Strategic complementarities...

This paper explains the evolution of the International Monetary Fund’s mandate and discusses its role in supporting countries experiencing a macroeconomic crisis. We consider the conditionality attached to its loans and why it is convenient in some regards. Even though its operations and...