This paper examines the pricing of public debt in a quantitative macroeconomic model with government default risk. Default may occur due to a fiscal policy that does not preclude a Ponzi game. When a build-up of public debt makes this outcome inevitable, households stop lending such that the...

This paper examines the pricing of public debt in a quantitative macroeconomic model with government default risk. Default may occur due to a fiscal policy that does not preclude a Ponzi game. When a build-up of public debt makes this outcome inevitable, households stop lending such that the...

Models of imperfect competition contain the possibility of multiple equilibria when the markup of price over marginal cost is negatively dependent on activity. The model most often used in applied work, the Dixit and Stiglitz (1977) model, is usually thought not to be able to produce such an...