We propose a model of sovereign debt where countries vary in their level of financial development, defined as the extent to which countries can hedge rare disasters in international capital markets. We show that low levels of financial development generate the “debt intolerance” phenomenon...

We propose a model of sovereign debt where countries vary in their level of financial development, defined as the extent to which countries can hedge rare disasters in international capital markets. We show that low levels of financial development generate the "debt intolerance" phenomenon that...

Recent empirical evidence supports the view that the income process has an individual-specific growth rate component [Baker (1997), Guvenen (2007b), and Huggett, Ventura, and Yaron (2007)]. Moreover, the individual-specific growth component may be stochastic. Motivated by these empirical...