This paper shows that there is more scope for a borrower to engage in a sustainable infinite debt rollover (a "Ponzi scheme") when interest/growth rates are stochastic. In this context, I prove that the relevant "r vs. g" comparison uses the yield r_{long} to an infinite-maturity zero-coupon...

This paper studies the public debt implications of a class of Aiyagari (1994)-Bewley (1977)-Huggett (1993) (ABH) models of incomplete insurance in which agents face a near-zero probability of a highly adverse outcome. In generic models of this kind, there exists a public debt bubble, so that the...

This paper studies stationary equilibria in a novel class of analytically tractable incomplete markets models with a public debt bubble (meaning that the interest rate r̅ on riskfree government bonds is less than the growth rate). Within the models, the return rᴋ to physical capital can...

In this paper, we use data from developing countries to argue that sovereign defaults are often caused by fiscal pressures generated by large-scale domestic defaults. We argue that these systemic domestic defaults are caused by shocks best interpreted as being non-fundamental. We construct a...

"In this paper, we use data from developing countries to argue that sovereign defaults are often caused by fiscal pressures generated by large-scale domestic defaults. We argue that these systemic domestic defaults are caused by shocks best interpreted as being non-fundamental. We construct a...