IDEAS home Printed from https://ideas.repec.org/a/sae/jocore/v69y2025i10p1713-1740.html

Crises and Consequences: The Role of U.S. Support in International Bond Markets

Author

Listed:
  • Lauren L. Ferry
  • Patrick E. Shea

Abstract

Sovereign default should theoretically lead to creditor punishment through higher borrowing costs or market exclusion. However, empirical evidence shows that punishment is inconsistent across defaulters. We argue that this disconnect can be explained by examining the role of geopolitical relationships, particularly with the United States. US support conditions expectations of both borrowers and creditors by providing a fiscal cushion and subsidized insurance. This dynamic incentivizes riskier financial behavior, increasing default likelihood. Paradoxically, post-default US support signals a greater ability to pay, reducing creditors’ incentives to punish. Using data on commercial defaults from 1970 to 2012, we find that states with higher levels of US support are more likely to restructure their debts. After restructuring, these states face lower borrowing costs and experience shorter periods of exclusion from bond markets. Our findings contribute to our understanding of the complex interplay between geopolitics and sovereign debt.

Suggested Citation

  • Lauren L. Ferry & Patrick E. Shea, 2025. "Crises and Consequences: The Role of U.S. Support in International Bond Markets," Journal of Conflict Resolution, Peace Science Society (International), vol. 69(10), pages 1713-1740, November.
    • Handle: RePEc:sae:jocore:v:69:y:2025:i:10:p:1713-1740
    DOI: 10.1177/00220027251327970
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/00220027251327970
    Download Restriction: no
    File URL: https://libkey.io/10.1177/00220027251327970?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Carmen M. Reinhart & Kenneth S. Rogoff, 2014. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," Annals of Economics and Finance, Society for AEF, vol. 15(2), pages 215-268, November.
    2. Beaulieu, Emily & Cox, Gary W. & Saiegh, Sebastian, 2012. "Sovereign Debt and Regime Type: Reconsidering the Democratic Advantage," International Organization, Cambridge University Press, vol. 66(4), pages 709-738, October.
    3. Campello,Daniela, 2015. "The Politics of Market Discipline in Latin America," Cambridge Books, Cambridge University Press, number 9781107039254.
    4. Christopher Zorn, 2001. "Estimating between‐ and within‐cluster covariate effects, with an application to models of international disputes," International Interactions, Taylor & Francis Journals, vol. 27(4), pages 433-445, June.
    5. Carter, David B. & Signorino, Curtis S., 2010. "Back to the Future: Modeling Time Dependence in Binary Data," Political Analysis, Cambridge University Press, vol. 18(3), pages 271-292, July.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Patrick E. Shea & Paul Poast, 2018. "War and Default," Journal of Conflict Resolution, Peace Science Society (International), vol. 62(9), pages 1876-1904, October.
    2. Chwieroth, Jeffrey, 2012. ""The silent revolution": how the staff exercise informal governance over IMF lending," LSE Research Online Documents on Economics 46623, London School of Economics and Political Science, LSE Library.
    3. Cormier, Ben, 2022. "Partisan external borrowing in middle-income countries," LSE Research Online Documents on Economics 113929, London School of Economics and Political Science, LSE Library.
    4. Lauren Kahn & Michael C. Horowitz, 2023. "Who Gets Smart? Explaining How Precision Bombs Proliferate," Journal of Conflict Resolution, Peace Science Society (International), vol. 67(1), pages 3-37, January.
    5. Iasmin Goes, 2023. "Examining the effect of IMF conditionality on natural resource policy," Economics and Politics, Wiley Blackwell, vol. 35(1), pages 227-285, March.
    6. Brooks, Sarah M. & Cunha, Raphael & Mosley, Layna, 2026. "Financial Markets and Mass Political Attitudes: Evidence from the 2022 Brazilian Election," SocArXiv 8b5r6_v1, Center for Open Science.
    7. Andreas Kern & Bernhard Reinsberg & Patrick E. Shea, 2024. "Why cronies don’t cry? IMF programs, Chinese lending, and leader survival," Public Choice, Springer, vol. 198(3), pages 269-295, March.
    8. Matthew DiGiuseppe & Patrick E. Shea, 2019. "The Devil’s Haircut: Investor–State Disputes over Debt Restructuring," Journal of Conflict Resolution, Peace Science Society (International), vol. 63(8), pages 1889-1922, September.
    9. Cormier, Benjamin & Naqvi, Natalya, 2023. "Delegating discipline: how indexes restructured the political economy of sovereign bond markets," LSE Research Online Documents on Economics 117248, London School of Economics and Political Science, LSE Library.
    10. Jeffrey Chwieroth, 2013. "“The silent revolution:” How the staff exercise informal governance over IMF lending," The Review of International Organizations, Springer, vol. 8(2), pages 265-290, June.
    11. Matthew DiGiuseppe & Patrick E. Shea, 2016. "Borrowed Time: Sovereign Finance, Regime Type, and Leader Survival," Economics and Politics, Wiley Blackwell, vol. 28(3), pages 342-367, November.
    12. Jansesberger, Viktoria, 2024. "Storms, floods, landslides and elections in India's growing metropolises: Hotbeds for political protest?," Working Papers 28, University of Konstanz, Cluster of Excellence "The Politics of Inequality. Perceptions, Participation and Policies".
    13. Jessica M. Mc Lay & Roy Lay-Yee & Barry J. Milne & Peter Davis, 2015. "Regression-Style Models for Parameter Estimation in Dynamic Microsimulation: An Empirical Performance Assessment," International Journal of Microsimulation, International Microsimulation Association, vol. 8(2), pages 83-127.
    14. Shimizu, Chihiro & Imai, Satoshi & Diewert, Erwin, 2016. "Alternative Approaches to Housing Services and Japanese CPI: -Bias from Nominal Rigidity of Rents-," HIT-REFINED Working Paper Series 35, Institute of Economic Research, Hitotsubashi University.
    15. Samir Jahjah & Bin Wei & Vivian Zhanwei Yue, 2013. "Exchange Rate Policy and Sovereign Bond Spreads in Developing Countries," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 45(7), pages 1275-1300, October.
    16. Polito, Vito & Wickens, Michael, 2015. "Sovereign credit ratings in the European Union: A model-based fiscal analysis," European Economic Review, Elsevier, vol. 78(C), pages 220-247.
    17. Thanh C. Nguyen & Vítor Castro & Justine Wood, 2022. "Political environment and financial crises," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 27(1), pages 417-438, January.
    18. Combes, Jean-Louis & Minea, Alexandru & Sawadogo, Pegdéwendé Nestor, 2021. "Does the composition of government spending matter for government bond spreads?," Economic Modelling, Elsevier, vol. 96(C), pages 409-420.
    19. Crowe, Christopher & Dell’Ariccia, Giovanni & Igan, Deniz & Rabanal, Pau, 2013. "How to deal with real estate booms: Lessons from country experiences," Journal of Financial Stability, Elsevier, vol. 9(3), pages 300-319.
    20. Bellelli, Francesco S. & Scarpa, Riccardo & Aftab, Ashar, 2023. "An empirical analysis of participation in international environmental agreements," Journal of Environmental Economics and Management, Elsevier, vol. 118(C).

    More about this item

    Keywords

    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:jocore:v:69:y:2025:i:10:p:1713-1740. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: http://pss.la.psu.edu/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.