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New research on borrowing and debt from Harvard Business School faculty on issues including the relation between sovereign debt portfolios and government bond risks across countries, and the costs of sovereign default.
Page 1 of 13 Results

Forgiving Medical Debt Won't Make Everyone Happier

by Rachel Layne

Medical debt not only hurts credit access, it can also harm one's mental health. But a study by Raymond Kluender finds that forgiving people's bills—even $170 million of debt—doesn't necessarily reduce stress, financial or otherwise.

'Repayment-by-Purchase' Helps Consumers to Reduce Credit Card Debt

by Grant E. Donnelly, Cait Lamberton, Stephen Bush, Zoe Chance, and Michael I. Norton

Many consumers fail to pay off credit card debt each month and suffer financial consequences. Repayment-by-purchase, allocating payment toward specific purchases on a credit card bill, helps consumers gain a sense of progress and control over credit card debt.

Loan Types and the Bank Lending Channel

by Victoria Ivashina, Luc Laeven, and Enrique Moral-Benito

Practitioners commonly refer to four distinct loan types: asset-based loans, cash flow loans, trade financing, and leasing. It is important to account for these differences in loan type in order to analyze the economic significance of credit market disruptions.

Corporate Leadership and Creditor Recovery Rates: Evidence from Executive Gender

by Clarissa Hauptmann and Anywhere Sikochi

This paper examines the relationship between executive gender and creditor recovery rates, showing that creditors to female-run firms have higher recovery rates in the event of default.

Undisclosed Debt Sustainability

by Laura Alfaro and Fabio Kanczuk

Presenting a scenario in which non-Paris Club lending and borrowing is fully disclosed, this study illustrates that transparency has potential effects of decreased debt sustainability for investors such as China, and significant welfare gains for recipient countries. Effects are particularly strong if the debt is large.

Forgiving Student Loan Debt Leads to Better Jobs, Stronger Consumers

by Dina Gerdeman

Without the burden of student loan debt, people seek higher-paying careers, stabilize their finances, and contribute to the economy, says Marco Di Maggio. Open for comment; 0 Comments.

Does Our Bias Against Federal Deficits Need Rethinking?

by James Heskett

SUMMING UP. Readers lined up to comment on James Heskett's question on whether federal deficit spending as supported by Modern Monetary Theory is good or evil. Open for comment; 0 Comments.

Debt Traps? Market Vendors and Moneylender Debt in India and the Philippines

by Dean Karlan, Sendhil Mullainathan, and Benjamin N. Roth

Small-scale entrepreneurs throughout the developing world often rely on moneylenders for working capital but at exorbitant interest rates. Results of three experiments involving market vendors in India and the Philippines show the difficulty that small-scale entrepreneurs face in escaping usage of moneylender debt.

Debt Redemption and Reserve Accumulation

by Laura Alfaro and Fabio Kanczuk

This study examines how reserve accumulation affects governments’ decisions to default. The analysis assumes that countries can accumulate reserves and borrow internationally using their own currency. Results suggest that the optimal level of international reserves is fairly large because their cost is mitigated by valuation-smoothing gains. The model matches some features of Brazil’s economic fluctuations.

Lessons Unlearned? Corporate Debt in Emerging Markets

by Laura Alfaro, Gonzalo Asis, Anusha Chari, and Ugo Panizza

Emerging markets are contending with a worrisome slowdown in economic growth accompanied by the build-up of corporate debt. Understanding this and other potential vulnerabilities requires knowing more about the state of emerging market corporate balance sheets, the drivers of debt accumulation, and the effects of both on the macroeconomy.

Sovereign Debt Portfolios, Bond Risks, and the Credibility of Monetary Policy

by Wenxin Du, Carolin E. Pflueger, and Jesse Schreger

This paper explains the relation between sovereign debt portfolios and government bond risks across countries. It demonstrates how the interaction of lender risk aversion and monetary credibility can explain why countries with positive bond-stock betas have the lowest local currency debt share. The framework gives rise to testable predictions on inflation, inflation cyclicality, sovereign debt portfolios, and proxies of effective monetary policy credibility, which the authors verify in the data. Overall, the study contributes to and builds upon the literature of government debt asset pricing.

The Costs of Sovereign Default: Evidence from Argentina

by Jesse Schreger and Benjamin Hebert

For several decades, one of the most important questions in international macroeconomics has been “why do governments repay their debts?” This study provides evidence that a sovereign default significantly reduces the value of domestic firms. Foreign-owned firms, exporters, banks, and large firms are particularly hurt more by increases in the probability of sovereign default.

Fiscal Rules and Sovereign Default

by Laura Alfaro and Fabio Kanczuk

As they catch up to developed ones, emerging countries tend to overborrow and often default on their debt. This study by Laura Alfaro and Fabio Kanczuk analyzes the welfare gains from alternative fiscal rules, finding the gains economically important. What is more, a simple, easily contractible threshold rule can generate gains virtually as high as the optimal rule.