Arellano, Cristina; Kocherlakota, Narayana - In: Journal of Monetary Economics 68 (2014) S, pp. 68-68
when many default. In an optimal contract, a successful entrepreneur repays yet an unsuccessful one defaults and liquidates … his assets. The bounds on liquidation generate, however, a second equilibrium where domestic borrowers default because … others are also defaulting. During these coordinated defaults tax collections fall which increases sovereign default risk. In …