The valuation of government debt is subject to strategic uncertainty, stemming from investors' sentiments. Pessimistic lenders, fearing default, bid down the price of debt. This leaves a government with a higher debt burden, increasing the likelihood of default and thus confirming the pessimism...

This paper studies the interaction of government debt and financial markets. Both markets are fragile: excessively responsive to fundamentals and prone to strategic uncertainty. This interaction, termed a ‘diabolic loop', is driven by government choice to bail out banks and the resulting...

This paper studies debt fragility and the sharing of the resulting strategic uncertainty through ex post bailouts. Default arises in equilibrium because of both fundamental shocks and beliefs. The probability of default depends on borrowing rates and, in equilibrium, on the beliefs of lenders...

This paper studies the repayment of regional debt in a multi-region economy with a central authority: who pays the obligation issued by a region? With commitment, a central government will use its taxation power to smooth distortionary taxes across regions. Absent commitment, the central...

This paper studies the implications of the circulation of interest bearing regional debt in a monetary union. Does the circulation of this debt have the same monetary implications as the printing of money by a central government? Or are the obligations of this debt simply backed by future...

This paper studies the role of exit from a monetary union during a debt crisis. A monetary union, such as the European Monetary Union, needs to establish a procedure for exit as a tool to cope with debt default. The paper studies various forms of exit and argues that "Euroization" is both a...

The literature on inventory holdings stresses their role in smoothing production when costs are convex. Existing empirical evidence suggests that output is more variable than consumption so that production smoothing is not apparently present. One way of explaining this finding is to allow for...

This paper reports on the first randomized evaluation of the impact of introducing the standard microcredit group-based lending product in a new market. In 2005, half of 104 slums in Hyderabad, India were randomly selected for opening of a branch of a particular microfinance institution...

This paper reports the results from a randomized experiment designed to evaluate the direct and indirect (displacement) impacts of job placement assistance on the labor market outcomes of young, educated job seekers in France. We use a two-step design. In the first step, the proportions of job...