Essays in international finance and macroeconomics.

Summary This paper consists of four chapters. The first chapter analyzes the sustainability of sovereign debt when the sovereign can offset its residents to reduce the possible collateral effects of a default. It is shown that in the absence of reputational costs, sovereign debt is sustainable under the condition that domestic exposures are not observable by the sovereign. The second chapter extends this analysis to the case of two countries where the private sector of one can be exposed to the sovereign debt of the other. I then show that in the case of a sovereign default, it may be optimal to compensate the private sector by buying the defaulting sovereign debt. Ex ante, this results in an implicit guarantee on sovereign debt. The third chapter considers the interaction between sovereign debt and fiscal policies. It establishes that when the domestic economy is Ricardian, the government can perfectly compensate its residents and, thus, there are no internal costs to default. The fourth chapter, co-authored with Roberto Pancrazi, studies the theoretical impact of the costs of participating in insurance markets on their ability to smooth consumption in the presence of idiosyncratic revenue risks. This theoretical impact is then confronted with the data.