Sovereign debt, volatility, and insurance

Kenneth Kletzer

No 2006-05, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: External debt increases the vulnerability of indebted emerging market economies to macroeconomic volatility and financial crises. Capital account reversals often lead sovereign debt repayment crises that are only resolved after prolonged and difficult debt restructuring. Foreign indebtedness exacerbates domestic financial distress in crisis, increasing both the incidence and severity of emerging market crises. These outcomes contrast with the presumption that access to international capital markets should help countries to smooth domestic consumption and investment against macroeconomic shocks. This paper uses models of sovereign to reconsider the role of sovereign debt renegotiation for international risk sharing and presents an approach for analyzing contractual innovations for implementing contingent debt repayments. The financial innovations that might allow risk-sharing rather than risk-inducing capital flows go beyond contractual changes that ease debt renegotiation by separating contingent payments from bonds.

Keywords: Debts, External; Financial crises; Insurance (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-fmk and nep-ias
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.frbsf.org/publications/economics/papers/2006/wp06-05bk.pdf (application/pdf)

Related works:
Working Paper: Sovereign Debt, Volatility and Insurance (2005)
Working Paper: Sovereign Debt, Volatility and Insurance (2005)
Working Paper: Sovereign Debt, Volatility and Insurance (2004)
Working Paper: Sovereign Debt, Volatility and Insurance (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2006-05

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of San Francisco Contact information at EDIRC.
Bibliographic data for series maintained by Federal Reserve Bank of San Francisco Research Library ().