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This paper studies fiscal policy effects in developing countries with external debt and sovereign default risks. State-dependent distributions of fiscal limits are simulated based on macroeconomic uncertainty and fiscal policy specifications. The analysis shows that expected future revenue plays...
Persistent link: https://www.econbiz.de/10013055258
We study a model of equilibrium sovereign default in which the government issues cocos (contingent convertible bonds) that stipulate a suspension of debt payments when the government faces liquidity shocks in the form of an increase of the bondholders' risk aversion. We find that in spite of...
Persistent link: https://www.econbiz.de/10013289445
How do oil price movements affect sovereign spreads in an oil-dependent economy? I develop a stochastic general equilibrium model of an economy exposed to co-moving oil price and output processes, with endogenous sovereign default risk. The model explains a large proportion of business cycle...
Persistent link: https://www.econbiz.de/10012858384
The World Bank and the IMF have adopted a debt sustainability framework (DSF) to evaluate the risk of debt distress in …
Persistent link: https://www.econbiz.de/10013055260
We quantify gains from introducing non-defaultable debt as a limited additional financing option into amodel of equilibrium sovereign risk. We find that, for an initial (defaultable) sovereign debt level equalto 66 percent of trend aggregate income and a sovereign spread of 2.9 percent,...
Persistent link: https://www.econbiz.de/10013043706
Using a quantitative sovereign default model, we characterize constrained efficient borrowing by a Ramsey government that commits to income-history-contingent borrowing paths taking as given ex-post optimal future default decisions. The Ramsey government improves upon the Markov government...
Persistent link: https://www.econbiz.de/10013252206
Is the seniority structure of sovereign debt neutral for a government's decision betweendefaulting and raising surpluses? In this paper, we address this question using a model ofdebt crises where a discretionary government endogenously chooses distortionary taxationand whether to apply an...
Persistent link: https://www.econbiz.de/10012913932
We analyze how concerns for model misspecification on the part of international lenders affect the desirability of issuing state-contingent debt instruments in a standard sovereign default model à la Eaton and Gersovitz (1981). We show that for the commonly used threshold state-contingent bond...
Persistent link: https://www.econbiz.de/10014030625
This paper surveys the literature on sovereign debt from the perspective of understanding how sovereign debt differs from privately issue debt, and why sovereign debt is deemed safe in some countries but risky in others. The answers relate to the unique power of the sovereign. One the one hand,...
Persistent link: https://www.econbiz.de/10014081238
Does gross or net debt matter for long-term sovereign spreads in emerging markets? The topic is important for understanding the borrowing cost implications of public asset liability management decisions (e.g. using assets to lower debt). We investigate this question using data on emerging market...
Persistent link: https://www.econbiz.de/10012962144