Niepelt, Dirk; Dellas, Harris - Society for Economic Dynamics - SED - 2014
The recent sovereign debt crisis has rekindled the debate on the role of austerity. By austerity, we mean consumption … optimal size of austerity by developing a model that augments the standard sovereign debt model with incomplete information … and credit rationing. We establish: First, some austerity is always inevitable. Second, intermediate levels of new loans …