Rare Disasters, Financial Development, and Sovereign Debt

Sergio Rebelo (), Neng Wang and Jinqiang Yang

No 25031, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We propose a model of sovereign debt in which countries vary in their level of financial development, defined as the extent to which they can issue debt denominated in domestic currency in international capital markets. We show that low levels of financial development generate the “debt intolerance” phenomenon that plagues emerging markets: it reduces overall debt capacity, increases credit spreads, and limits the country's ability to smooth consumption.

JEL-codes: G18 H63 (search for similar items in EconPapers)
Date: 2018-09
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Published as SERGIO REBELO & NENG WANG & JINQIANG YANG, 2022. "Rare Disasters, Financial Development, and Sovereign Debt," The Journal of Finance, vol 77(5), pages 2719-2764.

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Working Paper: Rare Disasters, Financial Development, and Sovereign Debt (2018)
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