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Hidden Debt

Bulent Guler, Yasin Onder and Temel Taskin

AEA Papers and Proceedings, 2022, vol. 112, 536-40

Abstract: We study the role of transparency in debt and default dynamics in a quantitative sovereign default model augmented with asymmetric information. We assume that the sovereign debt portfolio is not transparent and part of the debt is not observable to lenders. The quantitative model is calibrated to the Bolivian economy and matches its long-term and business cycle properties. The quantitative results show that when the government moves to a transparent reporting regime, bond prices improve and the sovereign debt portfolio shifts toward noncontingent debt with an increase in overall debt level. However, higher debt increases default frequency and reduces welfare.

JEL-codes: D82 F34 H63 O11 O16 (search for similar items in EconPapers)
Date: 2022
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DOI: 10.1257/pandp.20221003

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