We reexamine the tests for dynamic inefficiency in productive overlapping-generations economies with stochastic growth. Contrary to certain recent claims in the literature, we argue that the size of real, long-term, safe interest rates relative to average GDP growth is an inconclusive test for...

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 extend and refine Aguiar and Amador (2019)'s contraction approach to Eaton and Gersovitz (1981)'s sovereign debt model. In particular, we encompass time-varying interest rates and growth. We show that, when long-term interest rates exceed growth, equilibrium is unique and can be computed via...