This paper develops a micro-founded global game model of debt crises. I use this model to study which policies can help to prevent expectations-driven crises and how the desirability of such policies depends on market participants' expectations and the presence of economic policy uncertainty. I...

Foreign direct investors face uncertainty about government's type of the host country. In a two period game, we allow the host country's government to mitigate such uncertainty by sending a signal through fiscal policy. Our main finding states that a populist government may mimic a conservative...

A common view of sovereign debt markets is that they are prone to multiple equilibria. We show that such multiplicity does not exist in the infinite-horizon model of Eaton and Gersovitz (1981), a widely adopted benchmark for analyses of these markets. When the value from government default is...

This paper calls attention to the role of the secondary market in shortening the duration of sovereign debt renegotiation. Consider a dynamic bargaining game with incomplete information between a government and creditors. The creditors' reservation is private information, and the government...

We show that debt is sustainable at a competitive equilibrium based solely on the reputation for repayment; that is, even without collateral or legal sanctions available to creditors. In an incomplete asset market, when the rate of interest falls recurrently below the rate of growth of the...

We show that sovereign debt is unsustainable if debt contracts are not supported by direct sanctions and default carries only a ban from ever borrowing in financial markets even in the presence of uninsurable risks and time-varying interest rate. This extension of Bulow and Rogoff, 1989 requires...

This paper studies strategic savings and free-riding behaviours among ex- ante vulnerable firms in a fixed debt network under linear and quadratic default punishment structures. We specifically pay attention to networks without ex-ante default feedbacks. Results show Nash equilibrium are unique,...

Frequently, parties make sequential decisions regarding investments for which the probability of success or failure is dependent upon the amount of total investment. This paper reports a series of experiments involving a costly investment game which is derived from the catalytic finance model of...