In this paper we produce a theory of partial default applicable to sovereign debt. The theory uses Markovian equilibria and the notion that circulating unpaid coupons of any given country courtail its productive capabilities. As a consequence no issues of equilibrium selection appear in the...

Infrequent but dramatic episodes of outright default on domestic sovereign debt are an important historical fact that remains unexplained. We propose an incomplete-markets, heterogeneous-agents model in which domestic default can be optimal for a utilitarian government that responds to...

What are the stylized facts that characterize the dynamics of credit booms and the associated fluctuations in macro-economic aggregates? This paper answers this question by applying a method proposed in our earlier work for measuring and identifying credit booms to data for 61 emerging and...