We show that sovereign debt is unsustainable if debt contracts are not supported by direct sanctions and default carries only a ban from ever borrowing in financial markets even in the presence of uninsurable risks and time-varying interest rate. This extension of Bulow and Rogoff, 1989 requires...

We show that sovereign debt is unsustainable if debt contracts are not supported by direct sanctions and default carries only a ban from ever borrowing in financial markets even in the presence of uninsurable risks and time-varying interest rate. This extension of Bulow and Rogoff, 1989 requires...

Debt is sustainable at a competitive equilibrium due solely to the reputation of debtors for repayment; that is, even absent collateral or legal sanctions available to creditors. In the presence of uninsurable risks, or in an asset market that is incomplete, when the rate of interest falls...

We extend and refine Aguiar and Amador (2019)'s contraction approach to Eaton and Gersovitz (1981)'s sovereign debt model. In particular, we encompass time-varying interest rates and growth. We show that, when long-term interest rates exceed growth, equilibrium is unique and can be computed via...