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Essays on sovereign debt in the euro area

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TitleInfo
Title
Essays on sovereign debt in the euro area
Name (type = personal)
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Battistini
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Niccolo
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Niccolo Battistini
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Chang
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Roberto
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Roberto Chang
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Advisory Committee
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chair
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Keister
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Todd
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Todd Keister
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Advisory Committee
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internal member
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Landon-Lane
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John
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John Landon-Lane
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Advisory Committee
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internal member
Name (type = personal)
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Fuentes-Albero
NamePart (type = given)
Cristina
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Cristina Fuentes-Albero
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Advisory Committee
Role
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outside member
Name (type = corporate)
NamePart
Rutgers University
Role
RoleTerm (authority = RULIB)
degree grantor
Name (type = corporate)
NamePart
Graduate School - New Brunswick
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school
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Text
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theses
OriginInfo
DateCreated (qualifier = exact)
2017
DateOther (qualifier = exact); (type = degree)
2017-05
CopyrightDate (encoding = w3cdtf); (qualifier = exact)
2017
Place
PlaceTerm (type = code)
xx
Language
LanguageTerm (authority = ISO639-2b); (type = code)
eng
Abstract (type = abstract)
This dissertation explores the interaction between sovereign debt and investor preferences in the euro area during the recent crisis from both a theoretical and an empirical perspective. From an empirical perspective, in Chapter 2 (written with Marco Pagano and Saverio Simonelli), we investigate the relationship between the divergence of sovereign yields and CDS premia and the rise in banks' home bias, as well as its rationale. Our approach is based on (i) the decomposition of yield differentials and CDS spreads in a country-specific and a common risk component via a dynamic factor model and (ii) the estimation of a vector error-correction model on 2008-12 monthly data. We find that (i) in euro area periphery countries, banks increase their domestic exposure in response to increases in country risk and (ii) in most euro area countries, banks respond to an increase in the common risk factor by raising their domestic exposures. Finding (i) suggests distorted incentives in periphery banks' response to changes in their own sovereign's risk. Finding (ii) indicates that, when systemic risk increases, all banks tend to increase the home bias of their portfolios, making the euro area sovereign market more segmented. Policy implications are finally drawn from these findings. From a theoretical perspective, Chapters 3 and 4 analyze the interactions between macroeconomic fundamentals and debtor and creditor incentives through the lenses of dynamic general equilibrium models with strategic sovereign default. In Chapter 3, I provide a theoretical framework to understand three phenomena occurred at the onset of the recent sovereign debt crisis: (1) the increase in investor risk aversion, (2) the reversal in the process of union-wide financial integration and (3) the rise in the perceived imperfect substitutability of government bonds. Advancing a novel approach to modelling optimal portfolio strategy, the model assumes investors to exhibit preferences with a constant elasticity of substitution between bonds, which is inversely related to the degree of risk aversion, perceived financial segmentation and imperfect asset substitutability. Consistently with empirical evidence, a low elasticity, representing adverse market sentiments, implies a high sensitivity of yields to macroeconomic fundamentals. In an empirical assessment, the model captures several features of Greek sovereign yields, debt and default before and during the crisis. Finally, Chapter 4 proposes a comprehensive analytical framework for the assessment of fiscal sustainability in the euro area. The standard Eaton-Gersovitz model is enriched with two novel features to reflect salient features of euro area economies. First, the presence of domestically held debt implies that a sovereign default, through lower repayments on sovereign debt, determines both benefits for the public sector and costs for private domestic investors. As the sovereign seeks to maximize domestic welfare, a higher domestic share of debt increases the government's incentives to honor its obligations and, thus, expands its borrowing opportunities. Second, the introduction of credible supranational fiscal rules creates the possibility for self-fulfilling debt crises and, accordingly, increases the borrowing costs for the government. In this way, fiscal rules reduce the sovereign's optimal level of debt and foster market-based fiscal discipline. In an empirical application, the calibrated average euro area country faces a low risk of default, but it can reap both welfare and sustainability gains through fiscal consolidation.
Subject (authority = RUETD)
Topic
Economics
RelatedItem (type = host)
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Title
Rutgers University Electronic Theses and Dissertations
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ETD
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ETD_7900
PhysicalDescription
Form (authority = gmd)
electronic resource
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application/pdf
InternetMediaType
text/xml
Extent
1 online resource (xi, 176 p. : ill.)
Note (type = degree)
Ph.D.
Note (type = bibliography)
Includes bibliographical references
Subject (authority = ETD-LCSH)
Topic
Debts, Public--European Union countries
Note (type = statement of responsibility)
by Niccolo Battistini
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TitleInfo
Title
Graduate School - New Brunswick Electronic Theses and Dissertations
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rucore19991600001
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NjNbRU
Identifier (type = doi)
doi:10.7282/T3280BD0
Genre (authority = ExL-Esploro)
ETD doctoral
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Rights

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The author owns the copyright to this work.
RightsHolder (type = personal)
Name
FamilyName
Battistini
GivenName
Niccolo
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Copyright Holder
RightsEvent
Type
Permission or license
DateTime (encoding = w3cdtf); (qualifier = exact); (point = start)
2017-03-21 09:39:59
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Name
Niccolo Battistini
Role
Copyright holder
Affiliation
Rutgers University. Graduate School - New Brunswick
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License
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Author Agreement License
Detail
I hereby grant to the Rutgers University Libraries and to my school the non-exclusive right to archive, reproduce and distribute my thesis or dissertation, in whole or in part, and/or my abstract, in whole or in part, in and from an electronic format, subject to the release date subsequently stipulated in this submittal form and approved by my school. I represent and stipulate that the thesis or dissertation and its abstract are my original work, that they do not infringe or violate any rights of others, and that I make these grants as the sole owner of the rights to my thesis or dissertation and its abstract. I represent that I have obtained written permissions, when necessary, from the owner(s) of each third party copyrighted matter to be included in my thesis or dissertation and will supply copies of such upon request by my school. I acknowledge that RU ETD and my school will not distribute my thesis or dissertation or its abstract if, in their reasonable judgment, they believe all such rights have not been secured. I acknowledge that I retain ownership rights to the copyright of my work. I also retain the right to use all or part of this thesis or dissertation in future works, such as articles or books.
RightsEvent
DateTime (encoding = w3cdtf); (qualifier = exact); (point = start)
2017-05-31
DateTime (encoding = w3cdtf); (qualifier = exact); (point = end)
2019-05-31
Type
Embargo
Detail
Access to this PDF has been restricted at the author's request. It will be publicly available after May 31st, 2019.
Copyright
Status
Copyright protected
Availability
Status
Open
Reason
Permission or license
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2017-03-19T18:58:08
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