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41. Sovereign Debt Crises

Author:
Ricardo Correa and Horacio Sapriza
Publication Date:
05-2014
Content Type:
Commentary and Analysis
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Sovereign debt crises have been recurrent events over the past two centuries. In recent years, the timing of sovereign crises has coincided or has directly followed banking crises. The link between sovereigns and banks tightened as the contingent liability that the banking sector represents for the sovereign grew, as financial "safety nets" became more common. This chapter analyzes the transmission channels between sovereigns and banks, with a focus on the effect of sovereign distress on bank solvency and financing. It then highlights the notable cost to the real economy of the close connection between sovereigns and banks. Breaking the "feedback loop" between these two sectors should be an important policy priority.
Topic:
Debt, Sovereignty, Banking, and Economic Crisis
Political Geography:
Global Focus

42. Local Currency Sovereign Risk

Author:
Wenxin Du and Jesse Schreger
Publication Date:
12-2013
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
Do governments default on debt denominated in their own currency? We introduce a new measure of sovereign credit risk, the local currency credit spread, defined as the spread of local currency bonds over the synthetic local currency risk-free rate constructed using cross currency swaps. We find that local currency credit spreads are positive and sizable. Compared with credit spreads on foreign currency denominated debt, local currency credit spreads have lower means, lower cross-country correlations, and are less sensitive to global risk factors. Global risk aversion and liquidity factors can explain more time variation in these credit spread differentials than macroeconomic fundamentals.
Topic:
Debt, Sovereignty, Currency, and Credit
Political Geography:
Global Focus

43. Humanitarian Intervention as a ‘Responsibility to Protect’: An International Society Approach

Author:
Saban Kardas
Publication Date:
01-2013
Content Type:
Journal Article
Journal:
All Azimuth: A Journal of Foreign Policy and Peace
Institution:
Center for Foreign Policy and Peace Research
Abstract:
This article proposes to explain the post-Cold War practice of humanitarian intervention by drawing on the English School’s international society approach. It argues that although the sovereignty versus human rights debate traditionally was framed in dichotomized terms, the post-Cold War practice of humanitarian intervention illustrated the possibility of a via media approach to these competing normative claims. Post-Cold War developments regarding the place of the conventional norms of sovereignty and non-intervention on the one hand and the growing space for the protection of human rights on the other, have eased worries about the prospect for order in the international system and created a suitable environment for including of humanitarian intervention without jeopardizing that order. To contextualize this development, the article will argue that Hedley Bull’s discussion of such key terms as the international society, the centrality of states, the importance of norms, and normative change helps explain intervention in today’s world. By building on that framework, the article draws attention to the enabling and constraining factors highlighted by the international society approach, and as such, concludes that the English school suggests both promise and caution regarding the prospects for humanitarian intervention in modern international relations.
Topic:
Sovereignty, Humanitarian Intervention, International Community, Responsibility to Protect (R2P), and Non-Intervention
Political Geography:
Global Focus

44. The Timing of Sovereign Defaults Over Electoral Terms

Author:
Nathan Foley-Fisher
Publication Date:
05-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
I construct a database that maps the timing of sovereign default decisions into elected politicians' terms of office, that provides an empirical means of investigating political economy theories of sovereign default. I find no robust patterns in the timing of default decisions over terms of office. I also find no evidence in support of the political reputation theory of sovereign debt repayment. Finally, there is some tentative evidence that elected leaders who default are also those more likely to be re-elected. Motivated by anecdotal evidence, I use a stylised model of political leaders with career concerns to demonstrate how this can occur when politicians care about re-election.
Topic:
Sovereignty, Elections, Leadership, Economic Theory, and Fiscal Policy
Political Geography:
Global Focus

45. Banks, Sovereign Debt and the International Transmission of Business Cycles

Author:
Luca Guerrieri, Matteo Iacoviello, and Raoul Minetti
Publication Date:
12-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
This paper studies the international propagation of sovereign debt default. We posit a two-country economy where capital constrained banks grant loans to firms and invest in bonds issued by the domestic and the foreign government. The model economy is calibrated to data from Europe, with the two countries representing the Periphery (Greece, Italy, Portugal and Spain) and the Core, respectively. Large contractionary shocks in the Periphery trigger sovereign default. We find sizable spillover effects of default from Periphery to the Core through a drop in the volume of credit extended by the banking sector.
Topic:
Debt, Sovereignty, Business, Banks, and Capital
Political Geography:
Global Focus

46. Sovereign Credit Risk, Banks' Government Support, and Bank Stock Returns Around the World

Author:
Ricardo Correa, Kuan-Hui Lee, Horacio Sapriza, and Gustavo Suarez
Publication Date:
12-2012
Content Type:
Working Paper
Institution:
Board of Governors of the Federal Reserve System
Abstract:
We explore the joint effect of expected government support to banks and changes in sovereign credit ratings on bank stock returns using data for banks in 37 countries between 1995 and 2011. We find that sovereign credit rating downgrades have a large negative effect on bank stock returns for those banks that are expected to receive stronger support from their governments. This result is stronger for banks in advanced economies where governments are better-positioned to provide that support. Our results suggest that stock market investors perceive sovereigns and domestic banks as markedly interconnected, partly through government guarantees.
Topic:
Sovereignty, Governance, Risk, Credit, Bonds, and Stock Markets
Political Geography:
Global Focus

47. Has Sovereignty Eroded?

Author:
Binneh S. Minteh
Publication Date:
01-2012
Content Type:
Journal Article
Journal:
The Rest: Journal of Politics and Development
Institution:
Centre for Strategic Research and Analysis (CESRAN)
Abstract:
This paper argues that globalization and interdependence has contributed to the “contingent maneuvering” of states with sovereignty from an economic perspective, whilst nuclear non-proliferation, security, survival, and rising nationalism established states as prominent actors on the global stage from a political perspective. The paper proceeds with an Introduction and Background Information of the State in part one. Part two gives a literature review of the state on the global political stage. In part three, the paper theorizes globalization and economic interdependence as the border- less source responsible for the decreasing power of states. Part four ponders how the contentious issues of nuclear proliferation, residual nationalism and non state actors contributed to the erosion of sovereignty for reasons of security and survival. And in part five, I ponder the theoretical implications and give concluding remarks.
Topic:
Security, Globalization, Nationalism, and Sovereignty
Political Geography:
Global Focus

48. Beyond Sovereignty: The transformation of the Nation State

Author:
Jody Jensen
Publication Date:
08-2011
Content Type:
Commentary and Analysis
Institution:
Argentine Council for International Relations (CARI)
Abstract:
As interdependence and interconnection on the planet become ever-more apparent, new challenges and conflicts arise for individuals and for the role of government.
Topic:
International Relations, Sovereignty, and State
Political Geography:
Global Focus

49. States and Rules, Norms and Interests

Author:
Ian Hurd
Publication Date:
11-2008
Content Type:
Working Paper
Institution:
Centre for International Peace and Security Studies
Abstract:
The conventional separation in IR theory between instrumental behavior and legitimated norms as explanations for state action has discouraged the study of phenomena that include both. As a result important practices including hypocrisy, norm violation, and the strategic reinterpretation of rules and laws are under-examined. The source of the problem is the idea of 'internalization' of external rules and norms, which has come to define the distinction between rationalism and constructivism in IR, and between the logics of appropriateness and of consequences. I argue that internalization is problematic for empirical research in IR because it eliminates the possibility of strategic thinking by states in relation to international norms and rules. It leaves no room for instrumentalism around norms and so cannot account for norm violation, the strategic manipulation of norms, and the productive process of norm innovation. This is a problem equally for rationalism and constructivism. I argue for an alternative model that focuses on the practice of invoking international norms and rules and show that this approach allows new insight into the agent-structure problem, the relation between states and rules in world politics, and the relation between rationalism and constructivism.
Topic:
International Relations, International Political Economy, Sovereignty, and Political Theory
Political Geography:
Global Focus

50. Looking for Facts in the GATS Attack: Impacts on Social Service Sovereignty

Author:
Katherine Walraven
Publication Date:
05-2006
Content Type:
Journal Article
Journal:
Journal of Public and International Affairs (JPIA)
Institution:
School of Public and International Affairs (SPIA), Princeton University
Abstract:
This paper investigates the implications of the General Agreement on Trade in Services (GATS) for members’ regulatory sovereignty over social services. It presents the moderate view that, while some of the outcomes envisioned by those opposed to the agreement are unlikely, they are not impossible and there is therefore some cause for concern. Legal ambiguities and gaps in the GATS undermine how both civil society and World Trade Organization (WTO) members perceive it, limiting its credibility and future scope. The essay concludes with recommendations aimed at improving the reliability and credibility of the agreement in order to increase the degree of trade occurring under its purview.
Topic:
Sovereignty, Trade, Social Services, and WTO
Political Geography:
Global Focus