Essays on external debt and confidence crises

Sovereign debt crises, brought on by a loss of confidence in the government, occur when foreign investors' fear that the government will be unable to repay its debt becomes self-fulfilling. After the international financial crises of the 1990s, there was a broad consensus that excessive short-term borrowing was at the root of the problem. However, the existing literature failed to explain why governments insist on issuing short-term debt in spite of its risks. My thesis tries to fill that void by analyzing the optimal maturity structure of sovereign debt and revisiting the empirical evidence on confidence crises and short-term debt.; Chapter 1 studies the optimal maturity structure of sovereign debt in a model of tax smoothing involving a trade-off between the expected cost of debt servicing and the vulnerability to confidence crises. In this model, confidence crises may arise because of the inability of the current policymaker to control the choices of its successor. From this perspective, short-term debt acts as a commitment device since it reduces the debt service on long-term debt, thereby decreasing the incentive of future governments to default. As a result, if the likelihood of a confidence crisis is high enough, the optimal maturity structure of debt will shorten beyond perfect tax smoothing and avoid a debt crisis.; Chapter 2 evaluates empirically the relationship between the maturity structures of public and private external debt and confidence crises, considering explicitly the endogeneity of short-term debt. The main finding suggests that countries with higher amounts of private short-term debt are more vulnerable to confidence crises while the same does not hold for public short-term debt.; Chapter 3 explains the difference between public and private external debt found in chapter 2 by developing a model of sovereign debt crises where private debt is used as an instrument to smooth consumption. The main result illustrates how the underlying cause of these crises might be the existence of credit constraints on the private sector rather than its short-term debt exposure.