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Sovereign Debt, Government Myopia, and the Financial Sector
Acharya, Viral V. - 2011
What determines the sustainability of sovereign debt? We develop a model where myopic governments seek popularity but can nevertheless commit credibly to service external debt. They do not default when debt is low because they would lose access to debt markets and be forced to reduce spending;...
Persistent link: https://www.econbiz.de/10013119044
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Banks, Sovereign Debt and the International Transmission of Business Cycles
Guerrieri, Luca - 2012
This paper studies the international propagation of sovereign debt default. We posit a two-country economy where capital constrained banks grant loans to firms and invest in bonds issued by the domestic and the foreign government. The model economy is calibrated to data from Europe, with the two...
Persistent link: https://www.econbiz.de/10013101824
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The Mystique Surrounding the Central Bank's Balance Sheet, Applied to the European Crisis
Reis, Ricardo - 2013
In spite of the mystique behind a central bank's balance sheet, its resource constraint bounds the dividends it can distribute by the present value of seignorage, which is a modest share of GDP. Moreover, the statutes of the Federal Reserve or the ECB make it difficult for it to redistribute...
Persistent link: https://www.econbiz.de/10013087884
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Deadly Embrace : Sovereign and Financial Balance Sheets Doom Loops
Farhi, Emmanuel - 2016
and banking insolvency. This paper provides a theory of the feedback loop that allows for both domestic bailouts of the … banking system and sovereign debt forgiveness by international creditors or solidarity by other countries. Our theory has …
Persistent link: https://www.econbiz.de/10013001787
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Sovereign Debt and Consumption Smoothing
Grossman, Herschel I. - 2008
This paper shows that whether or not a sovereign can borrow to smooth consumption depends both on how consumption smoothing is achieved, whether by contingent debt issuance or by contingent debt servicing, and on the exact nature of the penalty for debt repudiation. If a sovereign that...
Persistent link: https://www.econbiz.de/10012774949
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Fiscal Rules and Sovereign Default
Alfaro, Laura - 2017
Recurrent concerns over debt sustainability in emerging and developed nations have prompted renewed debate on the role of fiscal rules. Their optimality, however, remains unclear. We provide a quantitative analysis of fiscal rules in a standard model of sovereign debt accumulation and default...
Persistent link: https://www.econbiz.de/10012957369
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Liquidity and Exchange Rates : An Empirical Investigation
Engel, Charles M. - 2018
We find strong empirical evidence that economic fundamentals can well account for nominal exchange rate movements. The important innovation is that we include the liquidity yield on government bonds as an explanatory variable. We find impressive evidence that changes in the liquidity yield are...
Persistent link: https://www.econbiz.de/10012906303
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Quantitative Sovereign Default Models and the European Debt Crisis
Bocola, Luigi - 2018
A large literature has developed quantitative versions of the Eaton and Gersovitz (1981) model to analyze default episodes on external debt. In this paper, we study whether the same framework can be applied to the analysis of debt crises in which domestic public debt plays a prominent role. We...
Persistent link: https://www.econbiz.de/10012911701
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Partial Default
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
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Take the Short Route : Equilibrium Default and Debt Maturity
Aguiar, Mark - 2016
We study the interactions between sovereign debt default and maturity choice in a setting with limited commitment for repayment as well as future debt issuances. Our main finding is that under a wide range of conditions the sovereign should, as long as default is not preferable, remain passive...
Persistent link: https://www.econbiz.de/10012978844