Papers & Abstracts

Jorra, M. (2012). The Effect of IMF Lending on the Probability of Sovereign Debt Crises. Journal of International Money and Finance 31 (4), 709-725.

This paper explores empirically how the adoption of IMF programs affects sovereign risk over the medium term.  We find that IMF programs significantly increase the probability of  subsequent sovereign defaults by approximately 1.5 to 2 percentage points. These results cannot be attributed to endogeneity bias as they are supported by specifications that explain sovereign defaults and program participation simultaneously. Furthermore, IMF programs turn out to be especially detrimental to fiscal solvency when the Fund distributes its resources to countries whose  economic fundamentals are already weak. Our evidence is therefore consistent with the hypothesis that debtor moral hazard is most likely to occur in these circumstances. Other explanations that point to the effects of debt dilution and the possibility of IMF triggered debt runs, however,  are also possible.  (working paper)


Brandt, J. and Jorra, M. (2012). Aid Withdrawal as Punishment for Defaulting Sovereigns? An Empirical Analysis. MAGKS Discussion Paper 20-2012, University of Giessen.

This paper empirically investigates whether donor countries punish sovereign defaults by reducing foreign aid flows. Our findings reject the hypothesis formulated in the theoretical literature that a default leads to a loss of foreign aid for the defaulting country. Creditor countries directly affected by the default do not reduce their aid disbursements. Hence, foreign aid is not used as a punishment instrument. Neither can it therefore serve as an enforcement mechanism for international debt contracts. Furthermore, other donors even raise the amount of development assistance allocated to the delinquent country by about 15% on average. Overall the amount of foreign aid given to the defaulting country increases by 6.4%. (working paper)


Förster, M., Jorra, M. and Tillmann, P. (2012). The Dynamics of International Capital Flows: Results from a Dynamic Hierarchical Factor Model. MAGKS Discussion Paper 21-2012, University of Giessen.

The present paper examines the degree of comovement of gross capital inflows, which is a highly sensitive issue for policy makers. We estimate a dynamic hierarchical factor model that is able to decompose inflows in a sample of 47 economies into (i) a global factor common to all types of flows and all recipient countries, (ii) a factor specific to a given type of capital inflows, (iii) a regional factor and (iv) a country-specific component. We find that the latter explains by far the largest fraction of fluctuations in capital inflows followed by regional factors, which are particularly important for emerging markets’ FDI and portfolio inflows as well as bank lending to emerging Europe. The global factor, however, explains only a small share of overall variation. The exposure to global drivers of capital flows, i.e. the global factor and the factor specific to each type of capital inflows, is particularly pronounced for countries with a more developed financial system. A fixed exchange rate regime does not shield countries from the ebb and flow of global capital flow cycles. (working paper)


Jorra, M. (2011). The Heterogeneity of Default Costs: Evidence from Recent Sovereign Debt Crises. MAGKS Discussion Paper 51-2011, University of Giessen.

This paper examines the costs of recent sovereign defaults using synthetic control methods, a novel econometric technique based on comparative case studies. Evidence on the effects of debt crises is thus presented on a case-by-case basis, uncovering large variations in country-specific experiences. Our estimates of   cumulated output losses, e.g., range between 8.5%  and 23% depending on the considered default episode. Further differences concern the persistence and likely causes of these costs. In particular, our results are consistent with the selective use of direct trade sanctions as punishment for sovereign defaults. (working paper)



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