dc.contributor.author
Müller, Andreas
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Storesletten, Kjetil
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Zilibotti, Fabrizio
dc.identifier
https://ddd.uab.cat/record/196748
dc.identifier
urn:oai:ddd.uab.cat:196748
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.
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The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.
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application/pdf
dc.relation
European Commission 649396
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Barcelona Graduate School of Economics. ADEMU working paper series ;
dc.rights
Aquest document està subjecte a una llicència d'ús Creative Commons. Es permet la reproducció total o parcial, la distribució, la comunicació pública de l'obra i la creació d'obres derivades, fins i tot amb finalitats comercials, sempre i quan es reconegui l'autoria de l'obra original.
dc.rights
https://creativecommons.org/licenses/by/4.0/
dc.subject
European debt crisis
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Markov equilibrium
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Sovereign debt
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Structural reforms
dc.title
Sovereign debt and structural reforms
