Quantitative models of sovereign debt predict that countries should default during deep recessions. However, empirical …

making default very costly when the costs are borne by all households at all times. The result does not necessarily extend to …

Emerging markets business cycle models treat default risk as part of an exogenous interest rate on working capital …, while sovereign default models treat income fluctuations as an exogenous endowment process with ad-noc default costs. We … propose instead a general equilibrium model of both sovereign default and business cycles. In the model, some imported inputs …