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In an asymmetric information framework, a number of authors have demonstrated the existence and uniqueness of short‐term debt pooling equilibria in the absence of dissipative costs. We show that short‐term debt pooling is robust to a broad range of deviations from stationarity and intertemporal independence. However, with intertemporal dependence, separating equilibria exist in which short‐term debt signals favourable information. Non‐stationary allows for separating equilibria in which long‐term debt signals favourable information. A range of deviations from stationarity and intertemporal independence also support long‐term debt pooling equilibria.

Empirically, net capital inflows are pro-cyclical in developed countries and countercyclical in developing countries. That said, private inflows are pro-cyclical and public inflows are counter-cyclical in both groups of countries. The dominance of private (public) inflows in developed (developing) countries drives the difference in total net inflows. We rationalize these patterns using a dynamic stochastic two-sector model of a small open economy facing borrowing constraints. Private agents over-borrow because of the pecuniary externality arising from constraints. The government saves abroad to reduce aggregate debt, making the economy resilient to adverse shocks. Differences in borrowing constraints and shock processes across countries explain the empirical patterns of capital inflows.

In this paper the author empirically examines whether the influence of bilateral investment treaties' political risk guarantees extends to other types of capital flows - FDI, private debt, public debt and portfolio equity. The paper uses panel data on middle and low income countries during the period 1984 - 2011 and adopts LSDV estimation methodology to account for heterogeneity arising from unobserved country, region, and time effects. The paper finds that ratified BITs with OECD countries increase FDI flows and reduce private debt flows. They also tilt the composition of capital flows in favor of FDI. The novelty of the paper stems from its extension of the examination BITs influence beyond FDI and the distinction between private and public debt flows. The paper contributes to the FDI and capital flows literatures.

The paper examines the relationship between more than 30 macroeconomic variables and debt-to-GDP ratios for the household, non-financial corporation and aggregate debt in a panel of European Union countries. The GDP level and the ratio of house prices to income are found to be positively correlated with the debt-to-GDP ratio, whereas the real interest rate, the inflation rate, economic sentiment and the government debt level are negatively correlated with the debt-to-GDP ratio. Low interest rates and the house price-to-income ratio predict growth in the future debt-to-GDP ratio. Moreover, countries that have had a financial crisis have typically gone through a period of deleveraging afterwards.

This study provides empirical evidence that the costs of austerity crucially depend on the level of private indebtedness. In particular, fiscal consolidations lead to severe contractions when implemented in high private debt states. Contrary, fiscal consolidations have no significant effect on economic activity when private debt is low. These results are robust to alternative definitions of private debt overhang, the composition of fiscal consolidations and controlling for the state of the business cycle and government debt overhang. I show that deterioration in household balance sheets is important to understand private debt-dependent effects of austerity.

This study provides empirical evidence that the costs of austerity crucially depend on the level of private indebtedness. In particular, fiscal consolidations lead to severe contractions when implemented in high private debt states. Contrary, fiscal consolidations have no significant effect on economic activity when private debt is low. These results are robust for alternative definitions of private debt overhang, the composition of fiscal consolidations and controlling for the state of the business cycle and government debt overhang. I show that deterioration in household balance sheets is important to understand private debt-dependent effects of austerity. ; In dieser Studie wird empirisch gezeigt, dass die realwirtschaftlichen Auswirkungen von Austeritätsmaßnahmen maßgeblich von dem Niveau der privaten Verschuldung abhängen. In Zeiten hoher privater Verschuldung, führen fiskalische Konsolidierungen zu einem signifikanten Rückgang der wirtschaftlichen Aktivität. Ist die private Verschuldung dagegen gering, haben Konsolidierungen keinen nennenswerten realwirtschaftlichen Effekt. Diese Ergebnisse sind robust gegenüber alternativen Definitionen von privaten Verschuldungsregimen, der Komposition fiskalischer Konsolidierungen und wenn man zusätzlich für den Konjunkturzyklus und öffentliche Verschuldung kontrolliert. Ich zeige, dass private verschuldungsabhängige Konsolidierungseffekte durch eine Verschlechterung der privaten Haushaltsbilanz erklärt werden können.