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Quantitative Sovereign Default Models and the European Debt Crisis / Luigi Bocola, Gideon Bornstein, Alessandro Dovis.
- Format:
- Book
- Author/Creator:
- Bocola, Luigi.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w24981.
- NBER working paper series no. w24981
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2018.
- Summary:
- A large literature has developed quantitative versions of the Eaton and Gersovitz (1981) model to analyze default episodes on external debt. In this paper, we study whether the same framework can be applied to the analysis of debt crises in which domestic public debt plays a prominent role. We consider a model where a government can issue debt to both domestic and foreign investors, and we derive conditions under which their sum is the relevant state variable for default incentives. We then apply our framework to the European debt crisis. We show that matching the cyclicality of public debt ---rather than that of external debt--- allows the model to better capture the empirical distribution of interest rate spreads and gives rise to more realistic crises dynamics.
- Notes:
- Print version record
- August 2018.
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