Fiorella De Fiore, Marie Hoerova, Harald Uhlig, 25 May 2019

Money markets are an important source of short-term funding for banks, which rely heavily on them to cover their liquidity needs. But as this column shows, when money markets do not function smoothly, banks may have to deleverage or increase their holdings of liquid assets, leading to a decline in lending and output. This decline can be mitigated by central banks if they increase the size of their balance sheets.

Sebastian Edwards, 04 March 2015

There were 24 sovereign defaults and debt restructurings between 1997 and 2013. Using data on 180 debt restructurings – for both sovereign bonds and sovereign syndicated bank loans – this column argues that the roughly 75% ‘haircut’ Argentina imposed on its creditors in 2005 was an outlier. Greece’s ‘haircut’ of roughly 64% in 2012, by contrast, was in line with previous experience.

Paolo Manasse, 14 October 2011

Markets are already prepared for a Greek default. This column says the real question is not whether Greece will default – it is how big a haircut will be imposed on creditors and what the consequences will be.

Juan José Cruces, Christoph Trebesch, 13 October 2011

What are the financial costs of a sovereign default? This column presents new data on investor losses – haircuts – in all sovereign debt restructurings between 1970 and 2010. Countries imposing high haircuts take significantly longer to reaccess capital markets after the event and subsequently pay higher interest rates.

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