Sovereign default: which shocks matter?
Guimaraes, B.
(2011).
Sovereign default: which shocks matter?
Review of Economic Dynamics,
14(4), 553-576.
https://doi.org/10.1016/j.red.2010.10.002
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 |
|---|---|
| Copyright holders | © 2011 Elsevier |
| Departments | LSE > Academic Departments > Economics |
| DOI | 10.1016/j.red.2010.10.002 |
| Date Deposited | 03 Oct 2011 |
| URI | https://researchonline.lse.ac.uk/id/eprint/38580 |