Essays on international debt with risk of repudiation

The risk of repudiation plays a central role in the size and nature of international capital flows. In the first chapter of this thesis I address the question of whether, in a world of international capital flows with risk of default, strategic externalities provide a rationale for regulation of domestic and international borrowing. I model both arrangements of international debt where only governments borrow and lend and arrangements where private agents have access to international markets. I then show that a setup with only government debt allows more international risk sharing than one with private debt. Furthermore in an economy with private international debt, I model both regulated and liberalized domestic markets and show that for certain parameter values regulated domestic markets are Pareto superior to liberalized markets.;The second chapter is an empirical paper on reversals of international capital flows. Financial crises in emerging market economies are closely linked to reversals of current account deficits. I establish a number of empirical regularities: Current account reversals are associated with a sharp drop in output, high international interest rates and tend to occur in countries that ran high deficits for an extended period of time. In addition, capital inflows are highly correlated within regions. Contagion of financial crises within certain regions can therefore be interpreted as contagion of inflows coupled with fragility resulting from high past current account deficits.;Pure exchange economies both with perfect enforcement and private international debt with risk of repudiation can account for several observations: The rise in interest rates and the high current account deficits prior to a crisis. They do a poor job in accounting for the path of output and interest rates after the crisis.