Showing 1 - 10 of 43
We measure the effects of debt dilution on sovereign default risk and show how these effects can be mitigated with debt contracts promising borrowing-contingent payments. First, we calibrate a baseline model `a la Eaton and Gersovitz (1981) to match features of the data. In this model, bonds'...
Persistent link: https://www.econbiz.de/10011080067
A long-standing puzzle of international capital flows is why countries hold large amount of external debt and foreign reserves at the same time. To address this puzzle, we propose a sovereign default model where the government decides jointly over the accumulation of long-duration bonds and...
Persistent link: https://www.econbiz.de/10011080188
We extend the standard Eaton and Gersovitz (1981) sovereign default model to study bailout policies. In our setup a country that concentrates a significant fraction of bond holders decide on a period by period basis whether to bailout a debtor government. The combination of bailout policies and...
Persistent link: https://www.econbiz.de/10011188031
We find the optimal target values for fiscal rules and measure their aggregate effects using a model of sovereign default. We calibrate the model to an economy that pays a significant sovereign default premium when the government is not constrained by fiscal rules. For different levels of the...
Persistent link: https://www.econbiz.de/10010551313
This paper studies an economy with credit risk in which, as in Bizer and DeMarzo (1992), borrowers cannot commit to exclusive contracts with lenders. In contrast with Bizer and DeMarzo (1992), we study a framework with multiple borrowing periods. In particular, we remove the exclusive-contract...
Persistent link: https://www.econbiz.de/10011080378
We propose a sovereign default framework that allows us to quantify the importance of the debt dilution problem in accounting for overborrowing and sovereign default risk. We find that debt dilution accounts for 12% of the mean debt level and almost 100% of the sovereign default risk in the...
Persistent link: https://www.econbiz.de/10011080645
This paper studies an economy with credit risk in which borrowers cannot commit to exclusive contracts with lenders as in Bizer and DeMarzo (1992). But we study a framework with multiple borrowing periods. In particular, we remove the exclusive contracts assumption from a baseline model of...
Persistent link: https://www.econbiz.de/10011081000
We quantify gains from introducing non-defaultable debt as a limited additional financing option into a model of equilibrium sovereign risk. We find that, for an initial (defaultable) sovereign debt level equal to 66 percent of trend aggregate income and a sovereign spread of 2.9 percent,...
Persistent link: https://www.econbiz.de/10011123839
Two striking facts about international capital flows in emerging economies motivate this paper: (1) Governments hold large amounts of international reserves, for which they obtain a return lower than their borrowing cost. (2) Purchases of domestic assets by nonresidents and purchases of foreign...
Persistent link: https://www.econbiz.de/10011203074
This paper provides a theoretical framework for quantitatively investigating the optimal accumulation of international reserves as a hedge against rollover risk. We study a dynamic model of endogenous default in which the government faces a tradeoff between the insurance benefits of reserves and...
Persistent link: https://www.econbiz.de/10010821884