dc.contributor.author |
Müller, Andreas |
dc.contributor.author |
Storesletten, Kjetil |
dc.contributor.author |
Zilibotti, Fabrizio |
dc.date |
2016 |
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. |
dc.description.abstract |
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 |
application/pdf |
dc.language |
eng |
dc.publisher |
|
dc.relation |
European Commission 649396 |
dc.relation |
Barcelona Graduate School of Economics. ADEMU working paper series ; |
dc.rights |
open access |
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 |
Austerity |
dc.subject |
Commitment |
dc.subject |
Debt overhang |
dc.subject |
Default |
dc.subject |
European debt crisis |
dc.subject |
Markov equilibrium |
dc.subject |
Moral hazard |
dc.subject |
Renegotiation |
dc.subject |
Risk premia |
dc.subject |
Risk sharing |
dc.subject |
Sovereign debt |
dc.subject |
Structural reforms |
dc.title |
Sovereign debt and structural reforms |
dc.type |
Working paper |