Makroökonomik V: Neuere Entwicklungen in der europäischen Makroökonomie (WS 12/13): "The Political Economy of Sovereign Debt and Default"

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1 Universität Duisburg Essen WS 2012/2013 Fakultät Wirtschaftswissenschaften Lehrstuhl für Volkswirtschaftslehre, insbesondere Makroökonomik Prof. Dr. Ansgar Belke Studiengänge: W8 (Master VWL), W2 (Diplom BWL), W3 (MSc Energiewirtschaft u. Finanzwirtschaft) Vorlesung: Blockveranstaltung (Mi , Fr , Fr & Do ) Art: Vorlesung (Wahlpflicht) Übersicht: Makroökonomik V: Neuere Entwicklungen in der europäischen Makroökonomie (WS 12/13): "The Political Economy of Sovereign Debt and Default" Das Ziel dieser Lehrveranstaltung besteht darin, Studierenden einen fundierten Einblick in aktuelle makroökonomische Politikaspekte zu geben. Der Schwerpunkt liegt auf den jüngsten Entwicklungen in Europa und insbesondere die Implikationen der aktuellen Finanzund Schuldenkrise. Hierbei stehen insbesondere folgende Themenbereiche im Vordergrund: Staatsfinanzierung und die Schuldenkrise, das Zusammenspiel von Geld und Fiskalpolitik in der EU, die Zahlungsbilanzkrise in der Eurozone, die quasi fiskalische Geldpolitik der EZB, Lösungsansätze zur Konsolidierung von Staatsschulden. Die Veranstaltung bietet eine Kombination aus Vorlesungselementen, seminarähnlichen Elementen und Fallstudien. Neben einführenden Vorlesungen werden aktuelle wissenschaftliche Zeitschriftenartikel besprochen, welche von den Studierenden zu den einzelnen Terminen in Eigenarbeit vorbereitet und anschließend in der Veranstaltung besprochen und aktiv diskutiert werden sollen. Die Prüfungsleistungen bestehen aus einem kurzen Vortrag zum Thema einer Session und dem Erstellen einer Ausarbeitung (das Final Paper) basierend auf einem weiteren Thema. Siehe unten für Details zu den Inhalten und den Prüfungsleistungen. Die Veranstaltung ist Bestandteil des Wahlpflichtmoduls Neuere Entwicklungen in der europäischen Makroökonomie (6 Credits) und ist für Studierende der Studiengänge Master VWL, Master BWL E&F sowie Diplom BWL anrechenbar im Wahlpflichtbereich. Hinweis: Da die einschlägige wissenschaftliche Literatur größtenteils in englischer Sprache verfasst ist, sind auch die Themenstellungen der einzelnen Sessions auf Englisch formuliert. Die Veranstaltung (einschließlich der Diskussionen, Vorträge und dem Final Paper) wird grundsätzlich in deutscher Sprache abgehalten, bei Interesse jedoch auch auf Englisch. Das eigenständige Erarbeiten der englischsprachigen Literatur stellt u.a. eine gute Vorbereitung auf die bei der Erstellung der Masterarbeit nötige Literaturarbeit dar. -1

2 Zeitplan: Block 1: Mittwoch, , 16:00 20:00 Uhr, R12 S05 H81 Block 2: Freitag, , 12:00 14:00 Uhr, R11 T08 C01 Block 3: Freitag, , 9:00 14:00 Uhr, R09 S02 B10 Block 4: Donnerstag, , 10:00 14:00 Uhr, V15 R03 H82 Bitte informieren Sie sich rechtzeitig vor den Veranstaltungen auf der Lehrstuhl Homepage über eventuelle Aktualisierungen. Anmeldung zur Veranstaltung: Bitte melden Sie sich bis einschließlich Donnerstag, den , durch Abgabe des Anmeldeformulars (siehe Website der Veranstaltung) im Sekretariat oder bei einem Mitarbeiter des Lehrstuhls zu der Veranstaltung an. Auf dem Formular können Sie jeweils drei Themenpräferenzen (Nr. 1 11, siehe unten) für die Präsentation und das Final Paper angeben, auf Basis dessen Ihnen die Themen zugeteilt werden. Sie können für Präsentation und Final Paper die gleichen Themenpräferenzen angeben, jedem Studierenden werden jedoch für Präsentation und Final Paper zwei unterschiedliche Themen zugeteilt. Sie können Ihre Anmeldung zu der Veranstaltung noch bis einschließlich Donnerstag, den , zurückziehen. Course Contents and Learning Objectives: Governments and international organisations such as the IMF have been struggling for more than two years on efforts to solve the European debt crisis. To date, no end is in sight. This seminar aims at enabling students to better understand these developments and possible policy solutions. Along the way, we will tackle some of the most prominently discussed questions: What causes sovereign debt crises and how can they be resolved? What is the impact of credit rating agencies, new financial instruments and governments? What is the role of central banks and official creditors in crisis resolution? The first part of the course deals with sovereign debt markets in "normal times". We will discuss the role of central actors in sovereign debt markets, in particular the relationship between national governments, bond market participants and central banks. Moreover, we will analyse the impact of credit rating agencies and discuss how markets come up with interest rates for governments. The second part of the course focuses on crisis times. We will assess the causes of debt crises and take a closer look at the main crisis resolution mechanisms: bail outs or bail ins of private and official creditors. In the final sessions, we will discuss the impact of political systems and legal institutions on crisis resolution. The seminar will leave students equipped with analytical tools and empirical background to analyse sovereign debt markets in general and debt crises in particular. Course Requirements and Grading: A background in economic theory and econometrics is not required but will be very helpful throughout the course. Students are expected to prepare the readings and the assignments scheduled for that day. Besides the readings, there are two assignments: A presentation and the final paper. -2

3 1) Presentation and Handout Presentation topics differ from session to session. For some sessions, we ask you to present and criticize a recent policy proposal. In some sessions, you are supposed to make the case for or against a general debate question based on the related academic literature. Presentation topics also include overviews of the literature and case studies of recent sovereign debt restructurings. In any case, you will have to limit your presentation time to max. 15 minutes (anything beyond will not be taken into account for grading). For each session, we provide a general debate question below so that you can get an idea of the discussions that we will have in the seminar. The handout is an important background document for class discussion. It should summarize in a highly structured and easily accessible manner the key arguments of your presentation. The document should be max. 2 pages long (anything beyond will not be taken into account for grading). The handout is due on the Sunday before the respective session, please send it in either Word or PDF format to jonas.keil@uni due.de. 2) Final Paper In your final paper, you are required to make an argument based on one of the session topics. We will provide a number of possible research questions, but you will also have the possibility to make your own suggestions. In a good paper, you will make a clear thesis statement that structures the point of the entire paper. You should base your argument on a good overview of the literature and show an understanding of the models and empirical techniques of the relevant literature. The paper should be a maximum of 4000 words (without references and tables) and is due on , please send it in either Word or PDF format to jonas.keil@uni due.de. Introduction 1. Financial Markets and Eight Centuries of Crises Mittwoch, , 16:00 20:00 Uhr, R12 S05 H81 Vortrag: Ines Endele Question: The Eurozone Debt Crisis: A Unique Challenge? Mishkin, F. (2004): The Economics of Money, Banking, and Financial Markets 7th ed., Boston: Pearson, chapter 2, and chapter 4, Reinhart, C. & Rogoff, K. (2009): This Time is Different: Eight Centuries of Financial Folly. Princeton: Princeton University Press. Chapter 6: External Default through History, Sturzenegger, F. & Zettelmeyer, J. (2007a): Debt Defaults and Lessons from a Decade of Crises. Cambridge, MA: MIT Press. Chapter 2, Vause, N. & von Peter, G. (2011): Euro Area Sovereign Crisis Drives Global Financial Markets. BIS Quarterly Review, (December 2011), Part I: Sovereign Debt Governments, Central Banks and Financial Markets 2. Sovereign Bond Markets and National Governments Mittwoch, , 16:00 20:00 Uhr, R12 S05 H81-3

4 Question: Are National Governments Constrained by Sovereign Bond Markets? Akitoby, B. & Stratmann, T. (2008): Fiscal Policy and Financial Markets. The Economic Journal, 118(533), Brooks, S.M. & Mosley, L. (2007): Risk, Uncertainty, and Autonomy: Financial Market Constraints in Developing Nations. Paper Presented at the American Political Science Association meeting 2007, (only the case study on Brazil, p !). Mosley, L. (2000): Room to Move: International Financial Markets and National Welfare States. International Organization, 54(4), Sovereign Debt and Monetary Policy Freitag, , 12:00 14:00 Uhr, R11 T08 C01 Vortrag: Thomas Wattenberg Questions: Which Role for Government Debt in the Conduct of Monetary Policy? Central Bank Sovereign Bond Purchases Which Options and Limits? Giordano, R., Tommasino, P. (2011): What Determines Debt Intolerance? The Role of Political and Monetary Institutions. European Journal of Political Economy, 27 (3), Belke, A. (2010): Driven by the Markets? ECB Sovereign Bond Purchases and the Securities Markets Programme. Intereconomics, Vol. 45 (6), Belke, A. & Polleit, T. (2010): Monetary Economics in Globalised Financial Markets, Section Fiscal Theory of the Price Level, Springer, Sovereign Debt in a Monetary Union Freitag, , 12:00 14:00 Uhr, R11 T08 C01 Question: What are the Implications of Sovereign Debt if a Change in the Exchange Rate is Impossible? Gros, D. & Thygesen, N. (1999): European Monetary Integration From the European Monetary System to Economic and Monetary Union, 2 nd ed., Chapters 8, 11.4 and Hellwig, M. (2011): Quo vadis, Euroland? European Monetary Union between Crisis and Reform. Preprints of the Max Planck Institute for Research on Collective Goods Bonn 2011/12. Sinn, H.W. & Wollmershaeuser, T. (2011): Target Loans, Current Account Balances and Capital Flows: The ECB's Rescue Facility. NBER Working Paper No , National Bureau of Economic Research, Cambridge/MA, November. 5. Sovereign Debt Asset Pricing Freitag, , 12:00 14:00 Uhr, R11 T08 C01 Question: What determines interest rates for governments? Duffie, D., Pedersen, L. & Singleton, K. (2003): Modeling Sovereign Yield Spreads: A Case Study of Russian Debt. Journal of Finance, Vol. 58 (1), European Commission (2010): Report on Sovereign CDS. Mimeo. 6. Sovereign Credit Ratings Freitag, , 9:00 14:00 Uhr, R09 S02 B10 Vortrag: Nora Gebert Question: Should European States Create an Official Sovereign Rating Agency? European Commission (2011): New Proposals on Credit Rating Agencies, 15/11/2011, FAQ and Press Release. Link: International Monetary Fund (2010): The Uses and Abuses of Sovereign Credit Ratings. In: Global Financial Stability Report October 2010: Chapter III. Véron, N. (2011): Rate Expectations: What Can and Cannot Be Done about Rating Agencies. Bruegel Policy Contribution. Issue 2011/14. -4

5 Part II: Causes and Resolution of Debt Crises 7. Bail Outs: The Role of Official Creditors Freitag, , 9:00 14:00 Uhr, R09 S02 B10 Vortrag: Christian Königsmann Question: Governments as Insurance Companies? Is Seniority for Official Financing Critical to Long Term Debt Prices? Gros, D. (2011): The Pitfalls of Official First loss Bond Insurance, VoxEU, October 27, Link: Gros, D. (2010): The Seniority Conundrum: Bail Out Countries But Bail in Private, Short term Creditors?, VoxEU, December 5, Link: Porzecanski, A.C. (2007): Debt Relief by Private and Official Creditor: the Record Speaks. International Finance, Vol. 10(2), Causes of Sovereign Debt Crises Freitag, , 9:00 14:00 Uhr, R09 S02 B10 Vortrag: Xiaoxi Sun Question: What Determines Sovereign Debt Crises: Profligate Politicians or Reckless Financial Markets? Mishkin, F. (2006): The Next Great Globalization: How Disadvantaged Nations can Harness their Financial Systems to Get Rich, Princeton N.J.: Princeton University Press, Chapters 5 and 7. Reinhart, C. & Rogoff, K. (2011): From Financial Crash to Debt Crisis. American Economic Review, Vol. 101 (5), Sturzenegger, F. & Zettelmeyer, J. (2007b): Debt Defaults and Lessons from a Decade of Crises. Cambridge, MA: MIT Press. Chapter 2, Bail Ins: Restructuring Sovereign Debt Donnerstag, , 10:00 14:00 Uhr, V15 R03 H82 Vortrag: Daniel Kurzbein Question: What are the Costs of Walking Away? Cruces, J. & Trebesch, C. (2011): Sovereign Defaults: The Price of Haircuts. CESifo Working Paper No Eichengreen, B. (2003): Restructuring Sovereign Debt. Journal of Economic Perspectives, Vol. 17 (4), Democracies and Default Donnerstag, , 10:00 14:00 Uhr, V15 R03 H82 Vortrag: Thomas Osowski Question: Do Some Sovereign States Enjoy a Democratic Advantage? North, D.C. & Weingast, B.R. (1989): Constitutions and Commitment: the Evolution of Institutions Governing Public Choice in Seventeenth century England. The Journal of Economic History, 49(4), Saiegh, S.M. (2005): Do Countries Have a Democratic Advantage? Political Institutions, Multilateral Agencies, and Sovereign Borrowing. Comparative Political Studies, 38(4), Schultz, K. & Weingast, B.R. (2003): The Democratic Advantage: Institutional Foundations of Financial Power in International Competition. International Organization, 57(01), The Law of Sovereign Default Donnerstag, , 10:00 14:00 Uhr, V15 R03 H82-5

6 Question: Can Legal Provisions Make Up for Lacking Insolvency Institutions? Blackman, J. & Mukhi, R. (2010): The Evolution of Modern Sovereign Debt Litigation: Vultures, Alter Egos, and Other Legal Fauna. Law and Contemporary Problems, Vol. 73, Bi, R., Chamon, M. & Zettelmeyer, J. (2011): The Problem that Wasn t: Coordination Failures in Sovereign Debt Restructurings. IMF Working Paper No. 11/