Show simple item record Müller, Andreas Storesletten, Kjetil Zilibotti, Fabrizio 2017-03-23T09:34:59Z 2017-03-23T09:34:59Z 2016-09
dc.description.abstract We construct a dynamic theory of sovereign debt and structural reforms with three interacting frictions: limited enforcement, limited commitment, and incomplete markets. A sovereign country in recession issues debt to smooth consumption and makes reforms to speed up recovery. The sovereign can renege on debt by suffering a stochastic cost, in which case debt is renegotiated. The competitive Markov equilibrium features large fluctuations in consumption and reform effort. We contrast the equilibrium with an optimal contract with one-sided commitment. A calibrated model can match several salient facts about debt crises. We quantify the welfare effect of relaxing different frictions.
dc.description.sponsorship The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries ADEMU Working Paper Series;56
dc.rights This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
dc.title Sovereign debt and structural reforms
dc.type info:eu-repo/semantics/workingPaper
dc.subject.keyword Austerity
dc.subject.keyword Commitment
dc.subject.keyword Debt overhang
dc.subject.keyword Default
dc.subject.keyword European debt crisis
dc.subject.keyword Markov equilibrium
dc.subject.keyword Moral hazard
dc.subject.keyword Renegotiation
dc.subject.keyword Risk premia
dc.subject.keyword Risk sharing
dc.subject.keyword Sovereign debt
dc.subject.keyword Structural reforms
dc.relation.projectID info:eu-repo/grantAgreement/EC/H2020/649396
dc.rights.accessRights info:eu-repo/semantics/openAccess


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