Crises on external sovereign debt are typically defined as defaults. Such a definition accurately captures debt-servicing difficulties in the 1980s, a period of numerous defaults on bank loans. However, defining defaults as debt crises is problematic for the 1990s, when sovereign bond markets...

I develop a framework of the build-up and outbreak of financial crises in an asymmetric information setting. In equilibrium, two distinct economic states arise endogenously: normal times – periods of modest investment, and booms – periods of expansionary investment. Normal times occur when...

This paper analyses the impact of financial frictions on markup adjustments at the firm level. We use a rich panel data set that matches information on banking relationships with firm-level data. By relying on insights from recent contributions in the literature, we obtain exogenous credit...

Using a large panel of OECD countries this paper studies the link between debt and macroeconomic stability by comparing the evolution of balance sheet aggregates and economic output in high- and lowdebt environments. While the relationship between debt and economic growth has been extensively...

How costly are sovereign debt crises? In this paper we study output losses during sovereign default and debt renegotiation episodes since 1980. In contrast to previous work, we account for the severity of default and not only for its occurrence. Specifically, we distinguish between “hard”...

This paper compares three types of early warning indicators of financial instability – those based on financial market prices, those based on normalized measures of total credit and those based on liabilities of financial intermediaries. Prices perform well as concurrent indicators of market...

Secured and unsecured credit composition differently affects the business cycle. US credit accounts are decomposed considering secured and unsecured contracts for businesses and households and their sample correlations with real activity compared to the conditional evidence from an estimated...

Regulators aiming to ward off the next financial market failure need to implement rules to smooth the boom-bust cycle in margin requirements and haircuts used in securities financing and derivative transactions, which seriously exacerbated the last financial crisis. In this study, the author...

This paper analyzes what assumptions on formation of expectations are consistent with Minsky's Financial Instability Hypothesis (FIH) and its corollaries. The FIH establishes that financial relations evolve over time turning a stable system into an unstable one. Financial crises would be more...

What is the role of supply and demand forces in determining movements in international banking flows? Answering this question is crucial for understanding the international transmission of financial shocks and formulating policy. This paper addresses the question by using the method developed in...