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Arellano, Cristina - 2019

initially increase and do not experience reductions upon resolution. This paper presents a theory of sovereign default that … replicates these properties, which are absent in standard sovereign default theory. Partial default is a flexible way to raise … as the defaulted debt accumulates and interest rate spreads increase. This theory is capable of rationalizing the large …

Persistent link: https://www.econbiz.de/10012866180

Inflation and Exchange Rate Targeting Challenges Under Fiscal Dominance

Ahmed, Rashad - 2019

Countries have significantly increased their public-sector borrowing since the Global Financial Crisis. As a consequence, monetary authorities may face pressure to deviate from their policy targets in ways designed to ease the debt burden. In this context, we test for greater fiscal dominance...

Persistent link: https://www.econbiz.de/10012867640

Bubbles and Self-Enforcing Debt

Hellwig, Christian - 2010

We characterize equilibria with endogenous debt constraints for a general equilibrium economy with limited commitment in which the only consequence of default is losing the ability to borrow in future periods. First, we show that equilibrium debt limits must satisfy a simple condition that...

Persistent link: https://www.econbiz.de/10012760614

Individual Versus Aggregate Collateral Constraints and the Overborrowing Syndrome

Uribe, Martín - 2010

This paper compares the equilibrium dynamics of an economy facing an aggregate collateral constraint on external debt to the dynamics of an economy facing a collateral constraint imposed at the level of each individual agent. The aggregate collateral constraint is intended to capture an...

Persistent link: https://www.econbiz.de/10012761465

Competition and Intervention in Sovereign Debt Markets

Paasche, Bernhard - 2010

We investigate markets for defaultable sovereign debt in which even though there are many identical lenders and symmetric information (including no hidden actions), perfect competition does not obtain. When a private lender allows a sovereign country to increase its level of indebtedness, that...

Persistent link: https://www.econbiz.de/10012763075

External Debt, Budget Deficits and Disequilibrium Exchange Rates

Dornbusch, Rudiger - 2010

The paper investigates the sources of debt and debt difficulties for a group of Latin American countries. It is argued that external shocks -- oil, interest rates, world recession and the fall in real commodity prices -- cannot account by themselves for the problems. Budget deficits that...

Persistent link: https://www.econbiz.de/10012763439

Sovereign Debt

Eaton, Jonathan - 2010

We review the literature on sovereign debt. We organize our survey around three central questions: (1) Why do sovereign debtors ever repay their debts? (2) What burdens, in the form of distortions and inefficiencies, does sovereign debt impose? and (3) How might debt be restructured to reduce...

Persistent link: https://www.econbiz.de/10012763742

Dynamic Efficiency, the Riskless Rate, and Debt Ponzi Games Under Uncertainty

Blanchard, Olivier - 2009

Can governments roll their debt over forever in dynamically efficient economies, and thus avoid the need to raise taxes? While the answer is a clear no under certainty, it depends, under uncertainty, on whether public debt provides intergenerational insurance. When it does not, rollover is not...

Persistent link: https://www.econbiz.de/10012767839

The True Cost of Social Security

Blocker, Alexander W. - 2008

Implicit government obligations represent the lion's share of government liabilities in the U.S. and many other countries. Yet these liabilities are rarely measured, let alone properly adjusted for their risk. This paper shows, by example, how modern asset pricing can be used to value implicit...

Persistent link: https://www.econbiz.de/10012769639

Future Rent-Seeking and Current Public Savings

Caballero, Ricardo J. - 2008

The conventional wisdom is that politicians' rent-seeking motives increase public debt and deficits. This is because myopic politicians face political risk and prefer to extract political rents as early as possible. An implication of this argument is that governments will under-save during a...

Persistent link: https://www.econbiz.de/10012769645

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