This thesis for the degree of Doctor of Philosophy in Economics focuses on the drivers, dynamics, and evolution of macroeconomic and sovereign debt crises. Particular attention is paid to the last few decades of the 20th Century, during which the speed, magnitude, and scope of crises increased dramatically, including as a result of consequential changes in the international financial system. The evolution of debt capital markets from the 1970s through to the early 2000s saw bonds displace syndicated bank loans as the primary source of external sovereign financing. This research details the mechanics of this process, which was driven in large part by capital account liberalization in many emerging market economies, and the development of global capital markets, which combined to drive an expansion of cross-border capital flows. In particular, the study discusses how this process was accompanied, inter alia, by an increase in the volume of financing available to developing countries, as well as a diffusion of interests and incentives across an increasingly-diverse set of investors, as the primary sources of sovereign credit shifted from a finite group of large financial institutions (and syndicates thereof), to innumerable bond investors. Together, these changes ushered in a new era of rapidly-propagating capital account crises, with increased potential to disrupt both countries and markets. These crises were inherently more difficult to resolve than those that had preceded them, owing in part to collective action and coordination problems driven by an increasingly-diffuse spectrum of investors and their respective preferences. Against this backdrop, this study draws on both empirical and other methods from the disciplines of macroeconomics, microeconomics (e.g., game and contract theory), and finance to better understand related implications for the pricing of sovereign debt, credit risk assessment methods, and forecasts of key economic variables and sovereign solvency under increasing uncertainty. Also considered are related implications for the dynamics of macroeconomic and sovereign debt crises, as well as efforts to reform the international financial architecture aimed at addressing related concerns.
|Date of Award
|1 Nov 2021
|Paul Lewis (Supervisor) & Scott James (Supervisor)