The dynamics of sovereign debt crises and bailouts

Roch, Francisco; Uhlig, Harald

doi:10.1016/j.jinteco.2018.05.002

Cited by 61 publications

(31 citation statements)

References 18 publications

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“…The way this can be formalized, as in Calvo (1988), 15 is with multiple interest rate functions R (b), selected from the correspondence de…ned in (1), which can be the low rate increasing schedule or the high rate decreasing one. Any other combination of those two schedules is also possible.…”

Section: Timing Of Moves and Multiplicity: Related Literaturementioning

confidence: 99%

Sovereign default: The role of expectations

Ayres

Navarro

Nicolini

et al. 2018

Journal of Economic Theory

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In the standard model of sovereign default, as in Aguiar and Gopinath (2006) or Arellano (2008), default is driven by fundamentals alone. There is no independent role for expectations. We show that small variations of that model are consistent with multiple interest rate equilibria. Some of those equilibria correspond to the ones identified by Calvo (1988), where default is likely because rates are high, and rates are high because default is likely. The model is used to simulate equilibrium movements in sovereign bond spreads that resemble sovereign debt crises. It is also used to discuss lending policies similar to the ones announced by the European Central Bank in 2012.

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Section: Timing Of Moves and Multiplicity: Related Literaturementioning

confidence: 99%

Sovereign default: The role of expectations

Ayres

Navarro

Nicolini

et al. 2018

Journal of Economic Theory

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“…Hatchondo and Martinez (2009), Arellano and Ramanarayanan (2012) and Chatterjee and Eyigungor (2012)), or bailouts (e.g. Roch and Uhlig (2014), Fink and Scholl (2014), Kirsch and Rühmkorf (2013)). In all these papers, there is no credit to the private Different from ours, however, they assume that firms are always able to borrow at the risk-free rate, which is at odds with the evidence.…”

Section: Introductionmentioning

confidence: 99%

Sovereign and private default risks over the business cycle

Kaas

Mellert

Scholl

2020

Journal of International Economics

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Sovereign debt crises are often accompanied by deep recessions and sharp declines in external credit to the private sector. In a sample of emerging economies we find that both, sovereign and private risk premia are countercyclical and that default events are associated by strong recessions and substantial drops in imports. In our paper we present a model of a small open economy that is able to account for these empirical regularities. It includes a production sector, financing a fraction of imports by external debt, and a government which borrows internationally and taxes firms to finance expenditures for public goods. The model gives rise to endogenous private and sovereign credit spreads and a dynamic feedback mechanism from sovereign to private default risks through the endogenous response of fiscal policy to adverse productivity shocks.

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“…Without renegotiation, its value is the same as the default value given by equation (24). In equilibrium, bond price and recovery functions for the small country satisfy the following equations:…”

Section: Small Country Modelmentioning

confidence: 99%