Lifetime-Laffer Curves and the Eurozone Crisis
Zachary Stangebye ()
No 63, 2016 Meeting Papers from Society for Economic Dynamics
Abstract:
In a finite-horizon model of sovereign debt and default, I show that long-term debt and the lack of ability to commit to future debt issuance can give rise to a multiplicity of debt and spread trajectories despite the ability to commit to contemporaneous debt issuance in terminal periods. This multiplicity bears resemblance to recent events in the Peripheral Eurozone. In a simple calibrated exercise, I find that 380 basis points (84.6%) of the spread during the crisis may be imputable to such coordination failures; if the model is extended to include bank bailouts, it can also explain 46.63 percentage points (37.8%) of the debt-to-GDP build-up. Policy analysis reveals that both austerity measures and liquidity provision by the central bank can eliminate malignant debt trajectories, but that the latter is more likely to have resolved the crisis.
Date: 2016
New Economics Papers: this item is included in nep-eec and nep-ger
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)
Downloads: (external link)
https://red-files-public.s3.amazonaws.com/meetpapers/2016/paper_63.pdf (application/pdf)
Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:red:sed016:63
Access Statistics for this paper
More papers in 2016 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().