This paper studies the impact of the state-dependent risk of a government default on the correlation of the scal balance and current account. We use a small open economy model where nonlinear risk premia arise endogenously when the government operates close to its scal limit, i.e. the maximum...

We examine the welfare effects of bailouts in economies exposed to sovereign default risk. When a government of a small open economy requests a bailout from an international financial institution, it receives a non-defaultable loan of size G that comes with imposed debt limits. The government...

This paper develops a quantitative general equilibrium model of sovereign default with heterogeneous agents to account for spillover of default risk across countries. Borrowers (sovereign governments) and foreign lenders (investors) in the model face financial frictions, which endogenously...

We study a model of equilibrium sovereign default in which the government issues cocos (contingent convertible bonds) that stipulate a suspension of debt payments when the government faces liquidity shocks in the form of an increase of the bondholders' risk aversion. We find that in spite of...

We study the occurrence of holdout litigation in the context of sovereign defaults. The number of creditor lawsuits against foreign governments has strongly increased over the past decades, but there is a large variation across crisis events. Why are some defaults followed by a "run to the...

This paper studies the bank-sovereign link in a dynamic stochastic general equilibrium set-up with strategic default on public debt. Heterogeneous banks give rise to an interbank market where government bonds are used as collateral. A default penalty arises from a breakdown of interbank...

I analyze the impact of austerity on sovereign spreads. To do so I propose a model with strategic sovereign default and nominal rigidities where the government follows fiscal rules, which are estimated from data. I first analyze the theoretical implications of the model and find that austerity...

We review the state of the sovereign debt literature and point out that the canonical model of sovereign debt cannot be easily reconciled with several facts about sovereign debt pricing and servicing. We identify and classify twenty puzzles. Some are well known and documented, others are less so...

We document that creditor losses ("haircuts") during sovereign debt restructurings vary across debt maturity. In our novel dataset on instrument-specific haircuts suffered by private creditors in 1999-2020 we find larger losses on short- than long-term debt, independently of the specific haircut...