. To account for this empirical fact, we model the optimal portfolio choice of a country that is subject to liquidity and … international lenders. Although raising debt increases the sovereign exposure to liquidity and productivity crises, the simultaneous …

anticipate that the country has an incentive to default after a liquidity shock. Indeed, in the event of such a shock, we show … world with liquidity crises and strategic default, we model a contracting game between international lenders and a country … reserves if the probability of liquidity shocks is high enough; however the cost of debt increases in reserves when the lenders …

the country has an incentive to default after a liquidity shock. Indeed, we show that the country may choose to retain … world with liquidity crises and strategic default, we model a contracting game between international lenders and a country … probability of liquidity shocks is high enough; however the cost of debt increases in reserves when the lenders anticipate that …

credit markets, liquidity demands rise in a country's domestic banking sector, which raise the probability of bank runs and …