Sovereign default risk and volatility

In a model of sovereign debt with endogenous default, we find a non-monotonic relationship between default risk and volatility, reflecting a trade-off between prudence and the insurance value of default. We show that this feature also holds in the data.

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Year of publication:	2012
Authors:	Daude, Christian
Published in:	Economics Letters. - Elsevier, ISSN 0165-1765. - Vol. 114.2012, 1, p. 47-50
Publisher:	Elsevier
Subject:	Volatility \| Default \| Sovereign debt

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Type of publication:	Article
Classification:	E62 - Fiscal Policy; Public Expenditures, Investment, and Finance; Taxation ; F34 - International Lending and Debt Problems
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10010597200