Sovereign default contagion: an agent-based model approach

João Silvestre

No 2017/08, Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa

Abstract: Sovereign default contagion in Eurozone has been under attention since the first problems in Greece at the end of 2009. Despite the improvements in the situation, in particular after several European Central Bank non- conventional monetary policy measures, the roots of the problem and policy prescriptions are still fiercely debated today. Using an agent-based model adapted from Tirole (2015), we simulate sovereign default contagion in a world where countries have random incomes, heterogeneous borrowing behaviors and risk aversion levels and where governments have the possibility to enter in ex-ante agreements to protect against default. We conclude that default contagion can be a very fast and ‘destructive’ process, higher spending countries tend to have lower disposable incomes and higher risk aversion levels are associated with lower default rates.

JEL-codes: C63 E62 G01 (search for similar items in EconPapers)
Date: 2017-03
New Economics Papers: this item is included in nep-cba, nep-cmp and nep-mac
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Citations: View citations in EconPapers (1)

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More papers in Working Papers Department of Economics from ISEG - Lisbon School of Economics and Management, Department of Economics, Universidade de Lisboa Department of Economics, ISEG - Lisbon School of Economics and Management, Universidade de Lisboa, Rua do Quelhas 6, 1200-781 LISBON, PORTUGAL.
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