Sovereign default: which shocks matter?

Guimaraes, Bernardo (2011) Sovereign default: which shocks matter? Review of Economic Dynamics, 14 (4). pp. 553-576. ISSN 1094-2025

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Abstract

This paper analyses a small open economy that wants to borrow from abroad, cannot commit to repay debt but faces costs if it decides to default. The model generates analytical expressions for the impact of shocks on the incentive compatible level of debt. Debt reduction generated by severe output shocks is no more than a couple of percentage points. In contrast, shocks to world interest rates can substantially affect the incentive compatible level of debt.

Item Type:	Article
Official URL:	http://www.economicdynamics.org/review.htm
Additional Information:	© 2011 Elsevier
Divisions:	Economics
Subjects:	H Social Sciences > HC Economic History and Conditions H Social Sciences > HG Finance
JEL classification:	E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates F - International Economics > F3 - International Finance > F34 - International Lending and Debt Problems F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics H - Public Economics > H6 - National Budget, Deficit, and Debt > H63 - Debt; Debt Management
Date Deposited:	03 Oct 2011 14:42
Last Modified:	11 Dec 2024 23:56
URI:	http://eprints.lse.ac.uk/id/eprint/38580

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