The wave of sovereign defaults in the early 1980s and the string of debt crises in subsequent decades have fostered proposals involving policy interventions in sovereign debt restructurings. The global financial crisis and the recent global coronavirus pandemic have further reignited this discussion among academics and…
To what extent are currency crashes linked to sovereign defaults? Measuring their relationship is notoriously difficult because these are rare disaster events. The author learns about the risk-neutral distribution of rare currency crushes from prices of far out-of-the-money (FOM) foreign exchange (FX) options and about…
There is little consensus on the macroeconomic impacts of sovereign debt crises, despite the regularity of such events. This column quantifies the aggregate costs of defaults using a narrative approach on a large panel of 50 sovereigns between 1870 and 2010. It estimates significant and persistent negative effects of debt…
As 2020 comes to a close and a new year dawns, LGIM's Asset Allocation team reflects on which predictions came true for 2020, and what to expect in 2021 – including some less obvious risks on the horizon.