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Sovereign debt, volatility, and insurance Author info | Abstract | Publisher info | Download info | Related research | Statistics Kenneth Kletzer
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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.
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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number
2006-05.
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Keywords: Debts ; External ; Financial crises ; Insurance ; Other versions of this item:
Paper Kenneth Kletzer, 2005.
"Sovereign Debt, Volatility and Insurance ,"
Working Papers Central Bank of Chile
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[Downloadable!] This paper has been announced in the following NEP Reports :
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Kenneth Kletzer, 2006.
"International Financial Integration, Sovereignty, and Constraints on Macroeconomic Policies ,"
IMF Working Papers
06/79, International Monetary Fund.
[Downloadable!]
Other versions:
Kletzer, Kenneth, 2005.
"International Financial Integration, Sovereignty, and Constraints on Macroeconomic Policies ,"
Monetary and Economic Studies ,
Institute for Monetary and Economic Studies, Bank of Japan, vol. 23(S1), pages 165-86, October.
[Downloadable!]
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