The question of what is a sustainable public debt is paramount in the macroeconomic
analysis of fiscal policy. This question is usually formulated as asking whether the …

Europe's debt crisis resembles historical episodes of outright default on domestic public debt
about which little research exists. This paper proposes a theory of domestic sovereign …

Financial institutions, especially in Europe, hold a disproportionate amount of domestic
sovereign debt. We examine the extent to which this home bias leads to capital …

I develop a model where the sovereign debt capacity depends on the capitalization of
domestic banks. Low-capital banks optimally tilt their government bond portfolio toward …

Sovereign debt restructurings are associated with declines in GDP, investment, bank credit,
and capital flows. The transmission channels and associated output and banking sector …

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 …

Banks usually hold large amounts of domestic debt which makes them vulnerable to their
own sovereign's default risk. At the same time, governments often resort to costly bailouts …

Why do governments borrow internationally? Why do they temporarily remain out of
international financial markets after default? This paper develops a quantitative model of …

We study optimal bailout policies in the presence of banking and sovereign crises. First, we
use European data to document that asset guarantees are the most prevalent way in which …

Evidence shows that sovereign risk increases funding cost and risk of banks highly exposed
to it. I build a model that rationalizes this fact. Banks act as delegated monitors and invest in …