is characterized by countercyclical default risk. In this paper we develop a quantitative dynamic stochastic small open economy model with incomplete markets,endogenous fiscal policy and sovereign and private sector default where public expenditures and tax rates are optimally procyclical. The...

A large body of the empirical literature shows that high turnover rates/length of tenure of policymakers and the degree of conflict within a country affects sovereign spreads, debt and default rates. We help to rationalize such claims by including these political features in a dynamic stochastic...

Emerging market economies typically exhibit a procyclical fiscal policy: public expenditures rise (fall) in economic expansions (recessions), whereas tax rates rise (fall) in bad (good) times. Additionally, the business cycle of these economies is characterized by countercyclical default risk....

established in the literature.

the state of the economy, they also feature thresholds of the chosen real variable that trigger payments. We argue that the latter are typically suboptimal.

This paper builds a model of sovereign debt in which default risk, interest rates, and debt depend not only on current fundamentals but also on news about future fundamentals. News shocks affect equilibrium outcomes because they contain information about the future ability of the government to...

This paper provides a new framework to study the term structure of interest rate spreads and the maturity composition of sovereign bonds. As observed in the literature, sovereign interest rate spreads increase during crises, with short term interest rate spreads rising more than long term...