We revisit the occurrence of self-fulfilling crises in sovereign debt markets under time-varyinginterest rates and growth. We show that, when long-term interest rates exceed growth, insolvencyis solely caused by the exhaustion of the sovereign’s debt repayment capacity subject to...

Debt is sustainable at a competitive equilibrium due solely to the reputation of debtors for repayment; that is, even absent collateral or legal sanctions available to creditors. In the presence of uninsurable risks, or in an asset market that is incomplete, when the rate of interest falls...

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...