The present PhD thesis addresses in four distinct empirical contributions research questions from the field of international finance. Special emphasis is given to the analysis of cross-border capital flows and sovereign debt crises. One paper is devoted to the study of the first and three to that of the latter area of research. The following paragraphs summarize the key results from these articles in their order of appearance.The first paper, "The Dynamics of International Capital Flows: Results from a Dynamic Hierarchical Factor Model", coauthored with Marcel Förster and Peter Tillmann, examines the degree of comovement of gross capital inflows using a data-driven approach. Specifically, 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 for each type of flow and (iv) a country-specific or idiosyncratic component. We find that the latter explains by far the largest fraction of fluctuations in capital inflows followed by regional factors. The global factor, however, explains only a small share of overall variation. The results thus goes against conventional wisdom which stresses the importance of global push factors as determinants of cross-border capital flows. Our analysis also uncovers country-specific variations in the exposure to global drivers of capital flows. Relating these differences to a standard set of explanatory variables we find that they can be partly attributed to the size of the recipient country s financial system and the tightness of capital controls.The second paper, "The Effect of IMF Lending on the Probability of Sovereign Debt Crises", explores how the adoption of IMF programs affects sovereign risk over the medium term. After showing that the effect is theoretically ambiguous I present empirical results which indicate that IMF programs significantly increase the probability of subsequent sovereign defaults by approximately 1.5 to 2 percentage points. These findings 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. The evidence is therefore consistent with the hypothesis that debtor moral hazard is most likely to occur in these circumstances.The third paper, "The Heterogeneity of Default Costs: Evidence from Recent Sovereign Debt Crises", analyzes the costs of recent sovereign defaults using synthetic control methods, a novel econometric technique based on comparative case studies. Evidence on the consequences of debt crises is thus presented on a case-by-case basis, going beyond the usual focus on the average effects of sovereign defaults. This shift in focus allows me to uncover large variations in country-specific experiences that have not received much attention in the literature so far. The 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, my results are consistent with the selective use of direct trade sanctions as punishment for sovereign defaults.The final paper, "Aid Withdrawal as Punishment for Defaulting Sovereigns? An Empirical Analysis", coauthored with Jana Brandt, 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%.
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