Reputation and Sovereign Default

dc.contributor.authorAmador, Manuel
dc.contributor.authorPhelan, Christopher
dc.date.accessioned2019-07-30T18:57:57Z
dc.date.available2019-07-30T18:57:57Z
dc.date.issued2019-04
dc.description.abstractThis paper presents a continuous-time model of sovereign debt. In it, a relatively impatient sovereign government's hidden type switches back and forth between a commitment type, which cannot default, and an optimizing type, which can, and where we assume outside lenders have particular beliefs regarding how a commitment type should borrow for any given level of debt and bond price. In any Markov equilibrium, the optimizing type mimics the commitment type when borrowing, revealing its type only by defaulting on its debt at random times. The equilibrium features a "graduation date"�: a finite amount of time since the last default, after which time reputation reaches its highest level and is unaffected by not defaulting. Before such date, not defaulting always increases the country's reputation. For countries that have recently defaulted, bond prices and the total amount of debt are increasing functions of the amount of time since the country's last default. For countries that have not recently defaulted (i.e., those that have graduated), bond prices are constant.
dc.identifier.citationThis is a pre-print and has not been peer reviewed.
dc.identifier.urihttps://hdl.handle.net/10657/4335
dc.language.isoen_US
dc.titleReputation and Sovereign Default
dc.typeSeminar

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