Using data from 40 nations, we obtain new stylized facts regarding the impact of political leanings of the ruling government on sovereign debt yields and fiscal policy. Left-wing governments' yields are 166 basis points higher and 23% more volatile than yields of right-wing governments....

This paper analyzes different government debt relief programs in the European Monetary Union. I build a model and study different options ranging from debt relief to the European Stability Mechanism (ESM). The analysis reveals the following: First, patient countries repay debt, while impatient...

The global recession caused by the COVID-19 pandemic and the resulting deterioration in many countries’ public finances have increased the risk of sovereign debt crises. Although crisis prevention remains paramount, these developments have made it imperative to re-examine the adequacy of the...

We are concerned with the dangers arising from excessive international debt overhang, primarily to financial stability in the debtor country. Assuming that debt forgiveness is not possible, a subject which we modelled earlier relating to the Greek debt crisis, (Goodhart et al. (2018)), we show...

We introduce a methodology for measuring default risk connectedness that is based on an out-of-sample variance decomposition of model forecast errors. The out-of-sample nature of the procedure leads to "realized" measures which, in practice, respond more quickly to crisis occurrences than those...

The global financial crisis of 2007-2009 crystallized the underlying imbalances that are currently acting to tear apart the Euro area monetary and fiscal systems by focusing markets and public attention on the core cause of the overall Euro crisis, the insolvency of the Euro area member-states...

The sovereign debt crisis in Europe has highlighted the role of country risk premia as a link between countries' fiscal and external balances, financial conditions and monetary policy. The purpose of this paper is to estimate how adoption of inflation targeting (IT) affects spreads. It is...

The sovereign debt crisis in Europe has highlighted the role of country risk premia as a link between countries' fiscal and external balances, financial conditions and monetary policy. The purpose of this paper is to estimate how adoption of inflation targeting (IT) affects spreads. It is...