The dynamics of sovereign debt crises and bailouts

By Francisco Roch, Harald Uhlig. Journal of International Economics, 2016

111 citations recorded by the source corpus.

Motivated by the recent European debt crisis, this paper investigates the scope for a bailout guarantee in a sovereign debt crisis. Defaults may arise from negative income shocks, government impatience or a "sunspot"-coordinated buyers strike. We introduce a bailout agency, and characterize the minimal actuarially fair intervention that guarantees the no-buyers-strike fundamental equilibrium, relying on the market for residual financing. The intervention makes it cheaper for governments to borrow, inducing them borrow more, leaving default probabilities possibly rather unchanged. The maximal backstop will be pulled precisely when fundamentals worsen.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/2b2d750c0f3fed25388f0250f8da1f8d1f645c8a

Citations in the corpus

• The "Mystery of the Printing Press" Monetary Policy and Self-fulfilling Debt Crises (2016, unknown): “(31) Under the assumptions just spelled out, the sovereign interest rates across equilibria are, respectively,”