According to the IMF, the current public debt makes up nearly 40 percent of the global debt, marking the highest share since the mid-1960s. Despite the vast research on alarming levels of sovereign default, the literature remains inconclusive. This paper investigates macroeconomic, financial,...

This paper extends the sovereign default model described in Arellano (2008) by including both domestic and foreign debts. The government issues debt and can either inflate away its domestic debt or default on its external component. Under a discretionary policy, the existence of domestic debt...

I show that corporate debt accumulation during booms can explain increases in sovereign risk during stress periods. Using idiosyncratic shocks to large firms as instruments for aggregate corporate leverage, I show that rising corporate leverage during the period 2002-2007 causally increases...