Search

I offer this article as a small way of honoring my friend, mentor, and role model Jim Crotty, whose intellectual legacy, commitment to engaged scholarship, lived experience, and warmth and generosity continue to influence me profoundly. Here, I offer several observations and speculations on the state of play in the global and US financial systems in a Crottyian vein. These include several 1980s throwbacks—bank failures in the United States; rentier-driven tight monetary policies across the world with attendant negative effects; and, debt distress and the likelihood of a (new) "lost decade" in the Global South. These familiar experiences are unfolding against the backdrop of an interregnum in which a "post-American global financial order" is emerging in an environment marked by "productive and destructive incoherence." JEL Classification: F02, F33, O23, E44, E58 [ABSTRACT FROM AUTHOR]

This article introduces the problematic situation of the great German banks and some non-German banks during the so-called second globalization since the 1970s. It formulates the questions that should be answered in the following contributions, each for a particular bank or group of banks. The most important overarching questions are firstly, to what extent banks were the driving force in the interconnectedness of cross-border money and capital flows and, secondly, to what extent they acted as triggers of the severe financial and/or sovereign debt crises during the last half century.

This paper examines how the internal–external composition of government debt affects the government's borrowing policy, sovereign risk, and welfare in a small open economy. To this end, I develop a dynamic stochastic general equilibrium model with endogenous default risk that includes both external and domestic debt. I calibrate the model to Argentina, and I show that the model closely reproduces key empirical moments. Moreover, I highlight the existence of an externality that distorts debt composition: Domestic debt levels are inefficiently low and default risk is inefficiently high. The welfare loss associated with the externality is roughly 0.7% when it is measured in permanent units of consumption. A Pigouvian subsidy that incentivizes domestic purchases of government bonds restores efficiency. [ABSTRACT FROM AUTHOR]

One of the reasons many countries decide to maintain fixed exchange rate regimes is the fear of wide exchange rate fluctuations. This aversion stems from the idea that monetary instability affects a country's ability to pay, especially if the denomination of debt is predominantly foreign currency. While the literature has focused on short and recent periods, this study adopts a long-term approach. It analyzes the link between debt and monetary crises between 1870 and 1957 in a sample of Latin American countries. We find that low exchange rate stability has contrasting effects on debt crisis frequency. In the 19th century, the exchange rate had modest effects on the occurrence of defaults, and it had no effect on the decision of governments to default during the interwar period. In the 19th century, debt and monetary crises did not always coincide. In both periods, the level of public debt relative to gross domestic product (GDP) and, to some extent, the behavior of the terms of trade were more important variables behind the incidence of defaults. Finally, we show that in the period after World War II, monetary stabilization largely preceded negotiations with debt bondholders. This long-term perspective relativizes the importance of exchange rate stability in the risk of default. [ABSTRACT FROM AUTHOR]

Copyright of Journal of Public Finance Studies / Maliye Çalismalari Dergisi is the property of Journal of Public Finance Studies / Maliye Calismalari Dergisi and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

This paper models sovereign debt negotiations between a debtor country (player 1) and its international official-sector (player 2) and private-sector (player 3) creditors. The presence of a third player allows for the formation of coalitions between two players. If there are key players that are part of all credible coalitions, such as creditors jointly imposing a partial refinancing agreement on a small debtor country, restructuring negotiations can be impaired and may result in partial default resolutions. These suboptimal bargaining outcomes are triggered when creditors stop extending a full refinancing agreement upon experiencing regret when learning that a partial agreement would have offered a higher return in the past. The introduction of regret allows the model to capture the extend-and-pretend approach that creditors frequently adopt in sovereign debt negotiations. Bounded rationality in the form of concerns for past outcomes, however, is insufficient to create bargaining inefficiencies. Suboptimal refinancing agreements are instead due to the existence of bargaining strength asymmetries, which implies that limiting the dominating presence of key players may help to restore efficiency to sovereign debt negotiations. [ABSTRACT FROM AUTHOR]

This paper surveys my research on development economics, undertaken in the context of the historical experiences of Brazil and Latin America. The research consists of academic papers, essays, economic fables, and reflections on my experiences in policy making. It spans different fields, including income distribution, industrial policies, dollar constraints and debt crises, commodity booms and coffee valorization, high inflation and stabilization policies, and Brazil’s growth record.

L’articolo ripercorre il percorso di ricerca dell’autore nell’ambito dell’economia dello sviluppo, con particolare riguardo alle esperienze del Brasile e dell’America Latina. Negli anni l’autore ha contribuito al dibattito con articoli accademici, saggi, fiabe economiche, e riflessioni sull’esperienza personale in campo politico. I principali temi affrontati sono la distribuzione dei redditi, le politiche industriali, le crisi debitorie, i prezzi delle materie prime, l’inflazione e le politiche di stabilizzazione, e la crescita in Brasile. This paper surveys my research on development economics, undertaken in the context of the historical experiences of Brazil and Latin America. The research consists of academic papers, essays, economic fables, and reflections on my experiences in policy making. It spans different fields, including income distribution, industrial policies, dollar constraints and debt crises, commodity booms and coffee valorization, high inflation and stabilization policies, and Brazil’s growth record. Jel Codes: F34, N16, O11, O41

Copyright of Moneta e Credito is the property of Associazione Economia Civile and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

What type of crisis is generated when debt increases? We extend the literature by framework by introducing currency and stock market crises in the analysis. We apply our proposal to the case of Spain, since this is a country that has experienced a very important amount of financial crises from the nineteenth century onwards. We find the same results as the previous literature for the determinants of banking and debt crises but substituting external and public debt with perpetual debt and where perpetual debt has a less important role than crises in the private sector. Moreover, we find evidence in favour of the hypothesis that currency crises depend strongly and positively on financial centre crises and negatively and mildly on perpetual debt. We justify the negative relalionship due to an inflation tax. We also find evidence in favour of the hypothesis that stock market crises depend only positively and strongly on financial centre crises. [ABSTRACT FROM AUTHOR]

This paper presents an analysis of the seeds of the recent debt crisis that occurred in the Eurozone area using a variant of Fleming and Stein [2004. “Stochastic Optimal Control, International Finance and Debt.”Journal of Banking and Finance, 28: 979–996] model. This model has two risk drivers arising from uncertainties in the return on capital and the effective rate of return on net foreign assets. Given the risk drivers, we model the net worth value process of an economy under a stochastic setting and show that opening to the rest of the world by pursuing the growth maximizing leverage strategy is better than remaining closed, as that strategy enhances the growth of the net worth process. Second, we provide an extra condition to show when the excessive leverage poses a threat to the sustainable growth of an economy. In this way, we improve the model introduced by Fleming and Stein as a signal of possible debt crises. Finally, we conduct an econometric analysis for the group of countries considered under this study, and show that there is a long-run relationship between the capital stock and the total external debt justifying the use of the structural model we employ. [ABSTRACT FROM AUTHOR]

This paper outlines a long-term policy and institutional framework for reducing the intensity of recessions, debt crises and financial instabilities, especially for the Core nations and areas that bore the brunt of the anomalies during 2008-2013. We argue that institutional changes need to be systemic, amounting to the construction of a new social structure of accumulation (SSA) or mode of regulation (MOR), which we call an SSA of embedded communitarian liberalism. Five institutional spheres are introduced which are in need of systemic change, due to the entrenched contradictions and problems which the current set of institutions generate. These involve firstly institutions within the world-system of finance and production; secondly relating to finance versus industry; thirdly capital versus labor; fourthly state systems of production; and fifthly the interlinking of state, community and ecology.

Period of Pinochet rule in Chile is still in the centre of interest of many experts. This article concentrates (mostly) on the economic side of the military rule. Pinochet took responsibility for the country in situation near to economic collapse caused by policy of the previous – Allendeęs government. The new government after the coup dęétat in 1973 had to stabilize economy. Soldiers at the same time start to implement economic reforms that improved the long run ability of the economy to grow. The economic uplift was interrupted by debt crisis at the beginning of 1980s. Pinochetęs government was able to deal with these obstacles and at the end passed the economy to the democratic government (at the end of 1980s) in good shape. The following positive development in the 1990s is thus based on the foundations built under the military rule.

With limited fiscal space, MENA governments with flexible exchange rates have been relying extensively on accommodative monetary policy to circumvent external shocks such as Covid 19 and other domestic macroeconomic imbalances. Other MENA countries with high debt levels and fixed exchange rates are not able to use conventional monetary policy effectively. We use a battery of econometric models to identify domestic and external nominal shocks affecting the MENA region and their dynamic transmission mechanisms through impulse response functions and granger causality tests derived from a structural VAR. Once the nature of those shocks is identified, we formulate appropriate macroeconomic policy responses to mitigate their effects. We show that shocks to Saudi Arabia's macroeconomic fundamentals and oil prices have a significant impact on MENA countries' GDP, inflation, and interest rates. In the absence of an effective conventional monetary policy, MENA central banks will have to rely more on non-conventional monetary policy tools. [Display omitted] • MENA countries with high debt levels and fixed exchange rates are not able to use monetary policy effectively. • We use a battery of econometric models with quarterly data to identify domestic and external nominal shocks impacting the MENA region and their dynamic transmission mechanisms. • Our empirical results indicate that MENA countries remain vulnerable to regional external and oil price shocks. • Shocks to Saudi Arabia's macroeconomic fundamentals and oil prices have a significant impact on MENA countries' inflation, GDP, and interest rates. • In the absence of an effective monetary policy MENA central banks will have to rely more on non-conventional monetary policy tools. [ABSTRACT FROM AUTHOR]

The recent debt crises in Europe and the U.S. states feature similar sharp increases in spreads on government debt but also show important differences. In Europe, the crisis occurred at high government indebtedness levels and had spillovers to the private sector. In the United States, state government indebtedness was low, and the crisis had no spillovers to the private sector. We show theoretically and empirically that these different debt experiences result from the interplay between differences in the ability of governments to interfere in private external debt contracts and differences in the flexibility of state fiscal institutions. [ABSTRACT FROM AUTHOR]

Using a panel of developed and developing countries and data for the period 1980 to 2005, we find that debt crises trigger financial reforms. We also show that (i) when general economic conditions deteriorate, financial reforms become more likely to take place; (ii) IMF-stabilization programmes and sovereign debt restructurings favour the implementation of financial reforms; and (iii) the quality of economic institutions strongly boosts financial reforms. [ABSTRACT FROM AUTHOR]

The paper demonstrates that debt crises are caused by debt rigidity. It is noted that similarly to wage and price rigidity debt rigidity makes markets unable to adjust quickly and adequately to the shocks in economy. It is justified that to make companies and banks more flexible and resistant to shocks, companies' liabilities similarly to income and assets price should be flexible. Paper argues that crisis in Japan and banking fragility in US and euro area countries are caused by debt rigidity, and these problems can be solved by liability flexibility which can be provided by profit participating financing. [ABSTRACT FROM AUTHOR]

This research paper gives an in depth review of Pakistan’s debt performance during Fiscal Years 1989 to 2007. The objective of the research was to study debt situation of Pakistan and develop a statistical framework using Binary Recursive Tree to analyze and compare the debt management performance of Pakistan during two eras namely: The Democratic Era (FY1989-FY1999) and Military Rule Era (FY1999-FY2007). The Binary Recursive Tree was used to analyze era wise performance based on the mean values of important debt indicators compared to benchmark values. The outcomes of the BRT analysis show that the Military Era had performed better than the Democratic Era, but as mentioned there are several external factors, which affect the debt performance of a country. BRT analysis for the Democratic Era showed that the Era as a whole was crisis prone; on the other hand the Military Era comparatively was not crisis prone.

Copyright of Central Bank Review is the property of Central Bank Review and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Abstract: “Open” practices have been at the forefront of research, business and political agendas for some time. Traditionally, research has focused on analysing critical factors for the deployment of Open Source (OS) Software and has highlighted the roles of “Collective Intelligence” and “participation in voluntary communities” in facilitating OS development. Nevertheless, there is little literature examining the role these Open Innovation (OI) practices may play in influencing the private-collective model of innovation and its application in economies-in-crisis to create public-good innovations. To address this gap, this paper uses the case of Greece. Data were gathered from interviews conducted with public policy makers and private sector top executives. The findings underline the importance of using OS as software to deal with cost reduction during debt crisis; but more importantly reveal a shift from OS to utilising the aforementioned OI practices to support the creation of public-good innovations through the private-collective model of innovation, and the difficulties faced in encouraging this initiative due to insufficient national innovation policy, and different philosophies, structures, and cultures followed by the organisations. The study calls for changes in the national policy supported by the private-collective model to leverage innovation. [Copyright &y& Elsevier]

This paper outlines a long-term policy and institutional framework for reducing the intensity of recessions, debt crises and financial instabilities, especially for the Core nations and areas that bore the brunt of the anomalies during 2008-2013. We argue that institutional changes need to be systemic, amounting to the construction of a new social structure of accumulation (SSA) or mode of regulation (MOR), which we call an SSA of embedded communitarian liberalism. Five institutional spheres are introduced which are in need of systemic change, due to the entrenched contradictions and problems which the current set of institutions generate. These involve firstly institutions within the world-system of finance and production; secondly relating to finance versus industry; thirdly capital versus labor; fourthly state systems of production; and fifthly the interlinking of state, community and ecology. [ABSTRACT FROM AUTHOR]

This article explores the relation between financial crises and economic discourse, focusing on the record of foreign debt crises. I identify a curious migration of discourse across social groups. Discourse that was previously proffered by bankers is now part of the production of economic ‘science’. I argue that this migration can be interpreted as an attempt to manage ‘speech-liability’. [ABSTRACT FROM PUBLISHER]

Summary: This paper develops a market-based procedure to significantly reduce the indebtedness of emerging markets by applying an asset-backed security approach to a pool of emerging market bonds. In an extensive simulation study based on historical data, the cumulated interest savings over a horizon of 10 years amount to about 20% of the credit sum on average (with a standard deviation of 8%) and up to 44% for individual countries—dependent on the internal distribution of the surplus. The theoretical structure of the transaction is explicitly derived in cooperation with professionals from major commercial banks, and it implies only negligible implementation cost. The implementation requires neither institutional reforms nor debt forgiveness, but can supplement or substitute previous measures. [Copyright &y& Elsevier]

Abstract: In the literature on currency and banking crises it has become the standard procedure to distinguish pure currency crises, pure banking crises and combined (“twin”) currency and banking crises. We show theoretically and empirically that a similar differentiation should be chosen with regard to currency and debt crises. Twin currency and debt crises differ from both pure currency and pure debt crises in their determinants, course of events, and economic consequences. We find that each type of crises has a unique set of macroeconomic causes. We also identify internal contagion and selection bias effects, which may lead to biased empirical estimates if twin crises are not treated as a specific type of crises. Such a separation allows in significantly improving the efficiency of early warning systems especially for debt and twin crises. [Copyright &y& Elsevier]

Though currency and debt crises quite often occur simultaneously, the links between these two types of crises are not well understood. We review how currency and debt crises could be related due to common causes, contagion effects from one crisis to the other, and complementary budget financing aspects. In an empirical analysis based on a panel of 80 countries over the period 1975–2000, we first investigate the determinants of each crisis separately. Then we estimate links between both crises employing instrumental variables techniques. We find that, while there is a negative lagged influence of currency crises on debt crises, currency crises significantly increase the risk of contemporaneous debt crises and vice versa. Copyright © 2006 John Wiley & Sons, Ltd. [ABSTRACT FROM AUTHOR]

Abstract: Building on a benchmark sample of 78 middle-income countries and based on generalized linear model (glm) estimations, we assess the risk of Belarus, Kazakhstan, Russia, and Ukraine to experience currency and/or debt crises as other emerging market economies have repeatedly done before. We find that as a result of their current fiscal and monetary situation, these countries face a low but not negligible risk of currency crises. Furthermore, there is also a rather low but not negligible risk of debt crises in all four countries. The risk of twin currency and debt crises is virtually zero in all four countries. In addition to these probability estimations based on the countries’current situation, our analysis also shows that it is essential for all four countries to avoid worsening economic fundamentals as especially an increase in their debt to GDP ratios would very rapidly increase the risk of debt and/or twin crises to serious levels in all countries. [Copyright &y& Elsevier]

Abstract: This paper develops an early warning system for debt crises broadly defined as episodes of outright default or failure of a country to be current on external obligations. A multinomial model is applied, that allows to differentiate between three regimes: a ‘tranquil’ period, a ‘crisis’ state and an adjustment or ‘post-crisis’ phase. The model, estimated using a large set of macroeconomic variables, is able to predict 76% of entries into crisis while sending 36% of false alarms and has rather good out-of-sample performance. Finally the paper tries to integrate the analysis based on macroeconomic variables with the approach based on risky market instruments. [Copyright &y& Elsevier]

This paper estimates country risk using an alternative method to commonly used country risk models by the rating agencies. The paper builds on earlier work and tries to identity empirically the important factors affecting debt service capacity of borrowing countries. In this study we assess the riskiness of 34 developing countries over the period 1986 to 1998 using a two-limit Tobit model. In the model a-year-ahead debt rescheduling ratios are used as the dependent variable. Using the debt rescheduling ratios, we emphasize the role of relative sizes of debt rescheduling in predicting external debt crisis. The model is tested for its predictability of the external debt crises and the results are compared with the rating of S&P and Moody's. A special emphasis is given to the recent Asian crisis and its predictability. [ABSTRACT FROM AUTHOR]