 Sovereign and private default risks over the business cycleLeo Kaas, Jan Mellert and Almuth Scholl Journal of International Economics, 2020, vol. 123, issue C Abstract: Sovereign debt crises are often accompanied by deep recessions with sharp declines in external credit to the private sector. In a sample of emerging economies we find that both, sovereign and private interest rate spreads are countercyclical. This paper presents a model of a small open economy that accounts for these empirical regularities. It includes private firms, which finance a fraction of imports by external debt and are subject to idiosyncratic productivity risk, and a government, which borrows internationally and taxes firms to finance public expenditures. The model gives rise to endogenous private and sovereign interest rate spreads and a dynamic feedback mechanism between sovereign and private default risks through the endogenous response of fiscal policy to adverse productivity shocks. Keywords: Sovereign default; Corporate borrowing; Interest rate spreads; Fiscal policy (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:123:y:2020:i:c:s002219962030012x DOI: 10.1016/j.jinteco.2020.103293 Access Statistics for this article Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and RodrÃguez-Clare, Andrés More articles in Journal of International Economics from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.