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Delays in debt restructuring negotiations are widely regarded as inefficient. This paper argues that delays can allow the economy to recover from a crisis, make more resources available for debt settlement, and enable the negotiating parties to enjoy a larger "cake". Within this context, therefore, delays may be "beneficial". This paper explores this idea by constructing a dynamic model of sovereign default in which debt renegotiation is modeled as a stochastic bargaining game based on Merlo and Wilson's (1995) framework. Quantitative analysis shows that this model can generate an average delay length comparable to that experienced by Argentina in its most recent debt restructuring.

Debt relief --- Debt renegotiation --- Debt rescheduling --- Debt restructuring --- Relief, Debt --- Renegotiation, Debt --- Rescheduling, Debt --- Restructuring, Debt --- Debtor and creditor --- Econometric models. --- Law and legislation --- Banks and Banking --- Finance: General --- Financial Risk Management --- Macroeconomics --- Debt --- Debt Management --- Sovereign Debt --- Macroeconomics: Consumption --- Saving --- Wealth --- Interest Rates: Determination, Term Structure, and Effects --- General Financial Markets: General (includes Measurement and Data) --- Finance --- Debt settlement --- Consumption --- Yield curve --- Capital markets --- Debts, External --- Economics --- Interest rates --- Capital market --- Argentina

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This paper provides a general framework to assess the output and debt dynamics of an economy undertaking multi-year fiscal adjustment. The framework allows country-specific assumptions about the magnitude and persistence of fiscal multipliers, hysteresis effects, and endogenous financing costs. In addition to informing macro projections, the framework can also shed light on the appropriate phasing of fiscal consolidation—in particular, on whether it should be front- or back-loaded. The framework is applied to stylized advanced and emerging economy examples. It suggests that for a highly-indebted economy undertaking large multi-year fiscal consolidation, high multipliers do not always argue against frontloaded adjustment. The case for more gradual or back-loaded adjustment is strongest when hysteresis effects are in play, but it needs to be balanced against implications for debt sustainability. Application to actual country examples tends to cast doubt on claims that very large multipliers have been operating post-crisis. It seems that the GDP forecast errors for Greece may have been due more to over-optimism on potential growth estimates than to underestimating fiscal multipliers.

Budget. --- Fiscal policy. --- Tax policy --- Taxation --- Economic policy --- Finance, Public --- Budgeting --- Expenditures, Public --- Government policy --- Forecasting --- Macroeconomics --- Public Finance --- Production and Operations Management --- Business Fluctuations --- Cycles --- Fiscal Policy --- Forecasts of Budgets, Deficits, and Debt --- Macroeconomics: Production --- Debt --- Debt Management --- Sovereign Debt --- Public finance & taxation --- Fiscal consolidation --- Fiscal multipliers --- Output gap --- Public debt --- Potential output --- Fiscal policy --- Production --- Economic theory --- Debts, Public --- Greece

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Since the global financial crisis, non-reserve-issuing economies (NREs) have been highly sensitive to episodes of external pressures. With monetary policy independence constrained by this sensitivity, many NREs have utilized other policy instruments. This paper confirms the vulnerability of NREs to external shocks and finds that in some circumstances managing such shocks with multiple instruments can both lessen the policy response required from any one policy tool to financial and external shocks and increase the effectiveness of policies in stabilizing macro-financial conditions. Effectiveness however does not always imply appropriateness, which rests on an evaluation of potential trade-offs and unintended consequences.

Banks and Banking --- Foreign Exchange --- Inflation --- Financial Markets and the Macroeconomy --- Monetary Policy --- Central Banks and Their Policies --- Current Account Adjustment --- Short-term Capital Movements --- Globalization: Macroeconomic Impacts --- Interest Rates: Determination, Term Structure, and Effects --- Price Level --- Deflation --- Currency --- Foreign exchange --- Banking --- Macroeconomics --- Central bank policy rate --- Exchange rates --- Exchange rate flexibility --- Exchange rate arrangements --- Financial services --- Prices --- Interest rates --- Russian Federation

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The global financial crisis experience shone a spotlight on the dangers of financial systems that have grown too big too fast. This note reexamines financial deepening, focusing on what emerging markets can learn from the advanced economy experience. It finds that gains for growth and stability from financial deepening remain large for most emerging markets, but there are limits on size and speed. When financial deepening outpaces the strength of the supervisory framework, it leads to excessive risk taking and instability. Encouragingly, the set of regulatory reforms that promote financial depth is essentially the same as those that contribute to greater stability. Better regulation--not necessarily more regulation--thus leads to greater possibilities both for development and stability.