The wave of sovereign defaults in the early 1980s and the string of debt crises in the decades that followed have fostered proposals involving policy interventions in sovereign debt restructurings. A key question about these proposals that has proved hard to handle is how they in influence the...

Using a system dynamics framework, this chapter examines the relationship between sovereign debt dynamics and the stability of financial institutions. It also assesses the effectiveness of various policy options aimed at restoring stability after severe macro-financial shocks. The system...