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Private overborrowing under sovereign risk

Arce, Fernando - 2022

This paper proposes a quantitative theory of the interaction between private and public debt in an open economy. Excessive private debt increases the frequency of financial crises. During such crises the government provides fiscal bailouts financed with risky public debt. This response may cause...

Persistent link: https://www.econbiz.de/10013194400

Welfare gains of bailouts in a sovereign default model

Pancrazi, Roberto; Seoane, Hernán D.; Vukotić, Marija - In: Journal of economic dynamics & control 113 (2020), pp. 1-22

Persistent link: https://www.econbiz.de/10012502547

Welfare gains of bailouts in a sovereign default model

Pancrazi, Roberto; Seoane, Hernán D.; Vukotic, Marija - 2019

open economy requests a bailout from an international financial institution, it receives a non-defaultable loan of size G … that comes with imposed debt limits. The government endogenously asks for the bailout during recessions and repays it when … the economy recovers. Hence, the bailout acts as an imperfect state contingent asset that makes the economy better off …