Seminar: Topics in Sovereign Debt (F)
Course content
Why do countries pay back sovereign debt? The question is a fundamental one in open economy macroeconomics. With rising global debt levels, increasingly frequent sovereign debt defaults, and geopolitics where sovereign debt plays a prominent role, the topic is paramount in understanding the global economy.
The seminar allows students to obtain knowledge and gain experience with the analysis of sovereign debt.
Topics can include, but are not limited to:
- The cost of sovereign debt defaults,
- Domestic and external debt,
- Financial crises,
- Devaluations and implicit defaults,
- Theoretical models of sovereign default,
- Quantitative models of sovereign default,
- Sovereign debt restructurings (haircuts, legal issues, negotiations, etc.),
- Sanctions and enforceability,
- Capital controls,
- The asset class and its derivatives,
- Investment returns of sovereign debt.
Within the topic of choice, students are expected to develop a specific research question, conduct an empirical analysis using suitable data, and discuss their findings in the context of existing literature. If the topic is related to models of sovereign debt or if the paper investigates sovereign debt empirically, students should implement models and methods in a programming language of their choice (MatLab, R, Python). Students can also replicate empirical results of journal articles and suggest alternatives or extensions.
The course is a part of the financial line, signified by (F)
The seminar is primarily for students at the MSc of Economics.
After completing the seminar, the student is expected to be able to fulfil the learning outcome specified in the Master curriculum and to be able to:
Knowledge:
- Identify, describe, and discuss core problems of sovereign debt in an international context.
- Account the main technical tools used in a rigorous modelling of sovereign debt.
- Understand the process of a sovereign debt default and restructuring.
- Critically reflect upon the methods currently used and potential shortfalls.
Skills:
- Critically examine the relevant literature for the chosen topic of the seminar paper.
- Find, use, and analyse relevant data for the purpose of answering the chosen research question.
- Analyse and interpret theoretical models.
- Present research in written and oral form, as well as engage in academic discussions on topics of sovereign debt.
Competences:
- Plan and carry out an independent research project.
- Conduct an empirical analysis to answer the research question within sovereign debt.
- Collaborate with peers.
Students receive individual guidance from the instructor.
Students prepare a draft assignment, which they present to the
teacher
and the other students. The students take turns acting as opponents
during each other’s presentations. The feedback should especially
focus
on the written presentation in the draft assignment, with
particular
emphasis on the introduction.
Students are expected to find the relevant literature on their chosen topics. A suggested reading list is given below for the modelling of sovereign debt, restructuring sovereign debt, and historical aspects. Two texts are mandatory to give an overview of the topics of sovereign debt.
Mandatory reading:
- Abbas, S. Ali, Alex Pienkowski, and Kenneth Rogoff, eds. 2019. Sovereign Debt: A Guide for Economists and Practitioners. Oxford: Oxford University Press.
- Uribe, Martin, and Stephanie Schmitt-Grohé. 2017. Open Economy Macroeconomics. Princeton: Princeton University Press, chapter 13.
Sovereign debt models:
- Aguiar, Mark, and Gita Gopinath. 2006. ‘Defaultable Debt, Interest Rates and the Current Account’. Journal of International Economics 69 (1): 64–83.
- Andrade, Sandro C., and Vidhi Chhaochharia. 2018. ‘The Costs of Sovereign Default: Evidence from the Stock Market’. The Review of Financial Studies 31 (5): 1707–51.
- Arellano, Cristina. 2008. ‘Default Risk and Income Fluctuations in Emerging Economies’. American Economic Review 98 (3): 690–712.
- Bianchi, Javier, Pablo Ottonello, and Ignacio Presno. 2023. ‘Fiscal Stimulus under Sovereign Risk’. Journal of Political Economy 131 (9): 2328–69.
- Bocola, Luigi, Gideon Bornstein, and Alessandro Dovis. 2019. ‘Quantitative Sovereign Default Models and the European Debt Crisis’. Journal of International Economics 118 (May): 20–30.
- Bulow, Jeremy, and Kenneth Rogoff. 1989a. ‘A Constant Recontracting Model of Sovereign Debt’. Journal of Political Economy 97 (1): 155–78.
- ———. 1989b. ‘Sovereign Debt: Is to Forgive to Forget?’ American Economic Review 79 (1): 43–50.
- Eaton, Jonathan, and Mark Gersovitz. 1981. ‘Debt with Potential Repudiation: Theoretical and Empirical Analysis’. The Review of Economic Studies 48 (2): 289–309.
- Grossman, Herschel I., and John B. Van Huyck. 1988. ‘Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation’. American Economic Review 78 (5): 1088–97.
- Mendoza, Enrique G., and Vivian Z. Yue. 2012. ‘A General Equilibrium Model of Sovereign Default and Business Cycles’. The Quarterly Journal of Economics 127 (2): 889–946.
- Na, Seunghoon, Stephanie Schmitt-Grohé, Martín Uribe, and Vivian Yue. 2018. ‘The Twin Ds: Optimal Default and Devaluation’. American Economic Review 108 (7): 1773–1819.
- Passadore, Juan, and Yu Xu. 2022. ‘Illiquidity in Sovereign Debt Markets’. Journal of International Economics 137 (July): 103618.
- Sosa-Padilla, César. 2018. ‘Sovereign Defaults and Banking Crises’. Journal of Monetary Economics 99 (November): 88–105.
- Trebesch, Christoph, and Michael Zabel. 2017. ‘The Output Costs of Hard and Soft Sovereign Default’. European Economic Review 92 (February): 416–32.
Sovereign debt restructurings and legal aspects:
- Asonuma, Tamon, and Christoph Trebesch. 2016. ‘Sovereign Debt Restructurings: Preemptive or Post-Default’. Journal of the European Economic Association 14 (1): 175–214.
- Buchheit, Lee, Mitu Gulati, and Robert Thompson. 2007. ‘The Dilemma of Odious Debts’. Duke Law Journal 56 (5): 1201–62.
- Cheng, Gong, Javier Díaz-Cassou, and Aitor Erce. 2018. ‘Official Debt Restructurings and Development’. World Development 111 (November): 181–95.
- Esteves, Rui, Jason Lennard, and Sean Kenny. 2021. ‘The Aftermath of Sovereign Debt Crises: A Narrative Approach’, CEPR working paper DP16166.
- Gelpern, Anna, G. Mitu Gulati, and Jeromin Zettelmeyer. 2019. ‘If Boilerplate Could Talk’. Law & Social Inquiry 44 (3): 617-46.
- Hinrichsen, Simon. 2021. ‘The Iraq debt restructuring’. Capital Markets Law Journal 16(1): 95-115.
- Rogoff, Kenneth. 2022. ‘Issues in the Theory of Sovereign Debt and Post-Covid Workouts’. Journal of Policy Modeling 44 (4): 804–11.
- Schumacher, Julian, Christoph Trebesch, and Henrik Enderlein. 2021. ‘Sovereign Defaults in Court’. Journal of International Economics 131 (July): 103388.
- Sgard, Jérôme. 2016. ‘How the IMF Did It—Sovereign Debt Restructuring between 1970 and 1989’. Capital Markets Law Journal 11 (1): 103–25.
- Sunder-Plassmann, Laura. 2018. ‘Writing off Sovereign Debt: Default and Recovery Rates over the Cycle’. Journal of International Money and Finance 81 (March): 221–41.
Historical aspects:
- Andritzky, Jochen R., and Julian Schumacher. 2019. ‘Long-Term Returns in Distressed Sovereign Bond Markets: How Did Investors Fare?’ IMF Working Paper 19/138.
- Cruces, Juan J., and Christoph Trebesch. 2013. ‘Sovereign Defaults: The Price of Haircuts’. American Economic Journal: Macroeconomics 5 (3): 85–117.
- Flandreau, Marc, and Juan H. Flores. 2012. ‘Bondholders versus Bond-Sellers? Investment Banks and Conditionality Lending in the London Market for Foreign Government Debt, 1815–1913’. European Review of Economic History 16 (4): 356–83.
- Gelpern, Anna, Sebastian Horn, Scott Morris, Brad Parks, and Christoph Trebesch. 2023. ‘How China Lends: A Rare Look into 100 Debt Contracts with Foreign Governments’. Economic Policy (forthcoming). https://doi.org/10.1093/epolic/eiac054.
- Hinrichsen, Simon. 2023. When nation’s can’t default: A history of war reparations and sovereign debt. Cambridge: Cambridge University Press.
- Lienau, Odette. 2014. Rethinking Sovereign Debt: Politics, Reputation, and Legitimacy in Modern Finance. Harvard: Harvard University Press.
- Meyer, Josefin, Carmen M. Reinhart, and Christoph Trebesch. 2022. ‘Sovereign Bonds since Waterloo’. The Quarterly Journal of Economics 137 (3): 1615-1680.
- Mitchener, Kris J., and Marc D. Weidenmier. 2010. ‘Supersanctions and Sovereign Debt Repayment’. Journal of International Money and Finance 29 (1): 19–36.
- Mitchener, Kris J., and Christoph Trebesch. 2023. ’Sovereign Debt in the 21st Century: Looking Backward, Looking Forward‘. Journal of Economic Literature (forthcoming).
- Reinhart, Carmen M., and Kenneth Rogoff. 2011. ‘The Forgotten History of Domestic Debt’. The Economic Journal 121 (552): 319–50.
- Roos, Jerome. 2019. Why Not Default? The Political Economy of Sovereign Debt. Princeton: Princeton University Press.
- Shea, Patrick E., and Paul Poast. 2018. ‘War and Default’. Journal of Conflict Resolution 62 (9): 1876–1904.
- Weidenmier, Marc D. 2005. ‘Gunboats, Reputation, and Sovereign Repayment: Lessons from the Southern Confederacy’. Journal of International Economics 66 (2): 407–22.
Topics in sovereign debt incorporates knowledge from
international economics, financial economics, and international
political economy.
Among other, the following courses are relevant to the study of
sovereign debt: Corporate Finance Theory (F), Financial
Econometrics A (F), Financial Theory and Models (F), Pricing
Financial Assets (F), International Economics (p).
It is recommended that students are familiar with basic models of
open economy macroeconomics, as well as have some knowledge of
fixed income markets.
BSc in Economics or similar
Exact dates will be available in the seminar’s course room no
later than 14 days before the start of the semester
• Kick-off meeting: Week 6 / 36. See exact date in Absalon.
• Additional meetings/introductory teaching/guidance: Optional. See
Absalon.
• Deadline for submission of commitment paper/project description:
No later than February 28 / September 30.
• Deadline for uploading seminar paper draft in Absalon: No later
than one week before the presentations. See exact date in Absalon.
• Presentations: In the period November 20 – December 11 for the
autumn semester and May 1 – 23 for the spring semester.
See exact dates in Absalon.
• Common submission date for all seminars: December 20 at 10:00 for
the autumn semester and June 1 at 10:00 for the spring
semester.
I usually provide feedback following the lectures, but I also plan to have one lecture only focused on feedback on the students’ ideas. I am also happy to give feedback on email, zoom or in-person meetings.
For enrolled students: More information about registration, schedule, rules etc. can be found at Master (UK) and Master (DK ).
More information about seminars is available at Seminars (UK) and Seminars (DK).
Read about the study programme and curricula at MSc in Economics
- ECTS
- 7,5 ECTS
- Type of assessment
-
Home assignment
- Type of assessment details
- Individual or in groups of up to 3.
A seminar paper of 15 standard pages for one person, 22.5 standard pages for 2 and 30 standard pages for 3 students.
See further exam information in the Masters Programme Curriculum. - Examination prerequisites
-
Attendance in all seminar activities as stated in the Master curriculum.
Reexam: Hand in and have approved a synopsis.
- Aid
- All aids allowed
Use of AI tools is permitted. You must explain how you have used the tools. When text is solely or mainly generated by an AI tool, the tool used must be quoted as a source.
- Marking scale
- 7-point grading scale
- Censorship form
- External censorship
- Exam period
-
The seminar paper must be uploaded in Digital Exam.
Common submission date for all seminars: June 1 at 10:00 for the spring semester.
For enrolled students more information about examination, rules, aids etc. is available at the intranet for Master (UK) and Master (DK ).
- Re-exam
-
Individual seminar paper of 15 standard pages. See further exam information in the Masters Programme Curriculum.
Deadline and more information is available at MSc in Economics - KUnet
More information about reexam etc. is available at Master(UK) and Master(DK).
Criteria for exam assessment
Students are assessed on the extent to which they master the learning outcome for the seminar and can make use of the knowledge, skills and competencies listed in the learning outcomes in the Curriculum of the Master programme.
- Category
- Hours
- Project work
- 186
- Seminar
- 20
- English
- 206
Kursusinformation
- Language
- English
- Course number
- AØKK08423U
- ECTS
- 7,5 ECTS
- Programme level
- Full Degree Master
- Duration
-
1 semester
- Placement
- Spring
- Capacity
- One class of up to 20 students
- Studyboard
- Department of Economics, Study Council
Contracting department
- Department of Economics
Contracting faculty
- Faculty of Social Sciences
Course Coordinator
- Simon Ostrowski Hinrichsen (16-766c707271316b6c71756c666b7668714368667271316e7831676e)
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