This study investigate how debt restructurings have evolved over the decades. Debtors and creditors have a long history of engaging an outsider a third party”, such as the IMF to organise and facilitate debt restructurings. As we show, the importance of these third parties” has grown over...

We survey several key mechanisms that explain the composition of international capital flows: foreign direct investment, foreign portfolio investment and debt flows (bank loans and bonds). In particular, we focus on the following market frictions: asymmetric information in capital markets and...

Since 2002, spreads on emerging market sovereign debt have fallen to historical lows. Given the close links between sovereign spreads, capital flows to emerging markets, and economic growth, understanding the factors driving these spreads is very important. We address this issue in two stages....

The stability of the international financial system is in doubt. Analysis of the system has focused mainly on the sustainability of financing the American trade deficit and has failed to understand the microeconomics of transactions within the system. According to this brief by Thomas I. Palley,...

For some time, Levy Institute scholars have been engaged with issues related to the current account, government, and private sector balances. We have argued that the existing imbalances in these accounts are unsustainable and will ultimately present a serious challenge to the performance of the...

Foreign currency debt is widely believed to increase risks of financial crisis, especially after being implicated as a cause of the East Asian crisis in the late 1990s. In this paper, we study the effects of foreign currency debt on currency and debt crises and its indirect effects on short-term...

Using a new methodology that allows for nonlinearities, we find frequent support for sustainability in the debt of a set of Latin American countries. Our findings overturn results obtained with traditional unit-root tests and provide a more realistic alternative to evaluate the external solvency...

We present a model that illustrates the close relationship between the possibility of a currency crisis and the amount of private-sector debt within a four-stage sequential game framework. In the first stage, the government announces its exchange rate policy, and all agents in the economy...

This paper evaluates the challenges facing developing countries when there is uncertainty about the policy maker type. We consider a country characterized by volatile output, inelastic demand for fiscal outlays, high tax collection costs, and sovereign risk, where future output depends on the...