Pervasive sovereign defaults in the early 1980s triggered a flourishing theoretical literature on sovereign debt crises.  With calmer international capital markets in the late 1980s and early 1990s, interest in this literature languished.  The crises of the mid-1990s in Latin America and Asia and the European crisis in 2010 have, however, rekindled interest in the topic.   While the models of the 1980s focus on the determinants of defaults, the models of the last decade have also examined restructurings and the length of default spells as well as the size of investors’ losses following defaults.  The first part of the presentation will describe these models as well as the empirical research in the last two decades.

But most of the models on sovereign defaults focus on idiosyncratic shocks to the defaulter’s economy, despite that many of these crises are of a systemic nature. The second part of the presentation will focus on what the theoretical literature still cannot explain by examining stylized facts of sovereign defaults in the last 200 hundred years with particular attention to waves of defaults, systemic versus idiosyncratic crises, and the characteristics of restructurings.

Graciela Laura Kaminsky
The George Washington University