In spite of early skepticism on the merits of floating exchange rate regimes in emerging markets, 8 of the 25 largest countries in this group have now had a floating exchange rate regime for more than a decade. Using parsimonious VAR specifications covering the period of floating exchange rates,...

We present a unified model of sovereign debt, trade credit and international reserves. Our model shows that access to short-term trade credit and gross international reserves critically affect the outcome of sovereign debt renegotiations. Whereas competitive banks do optimally lend for the...