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Sovereign default: which shocks matter?

Guimaraes, Bernardo (2011) Sovereign default: which shocks matter? Review of Economic Dynamics, 14 (4). pp. 553-576. ISSN 1096-6099

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Identification Number: 10.1016/j.red.2010.10.002

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
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
Sets: Departments > Economics
Collections > Economists Online
Date Deposited: 03 Oct 2011 14:42
Last Modified: 03 Oct 2011 14:42
URI: http://eprints.lse.ac.uk/id/eprint/38580

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