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A general equilibrium model of sovereign default and business cycles / Enrique G. Mendoza, Vivian Z. Yue.
- Format:
- Book
- Author/Creator:
- Mendoza, Enrique G., 1963- author.
- Yue, Vivian Z., author.
- Series:
- Working paper series (National Bureau of Economic Research) ; 17151.
- NBER working paper series ; 17151
- Language:
- English
- Subjects (All):
- Business cycles--Econometric models.
- Business cycles.
- Debts, Public.
- Physical Description:
- 1 online resource (53 pages) : illustrations.
- Place of Publication:
- Cambridge, Massachusetts : National Bureau of Economic Research, 2011.
- Summary:
- Emerging markets business cycle models treat default risk as part of an exogenous interest rate on working capital, while sovereign default models treat income fluctuations as an exogenous endowment process with ad-hoc default costs. We propose instead a general equilibrium model of both sovereign default and business cycles. In the model, some imported inputs require working capital financing; default triggers an efficiency loss as these inputs are replaced by imperfect substitutes; and default on public and private obligations occurs simultaneously. The model explains several features of cyclical dynamics around defaults, countercyclical spreads, high debt ratios, and key business cycle moments.
- Notes:
- Description based on publisher supplied metadata and other sources.
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