The productivity cost of sovereign default: evidence from the European debt crisis

Jorge Alonso-Ortiz (), Esteban Colla-De-Robertis and José-María Da-Rocha ()
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Jorge Alonso-Ortiz: ITAM
José-María Da-Rocha: ITAM
Authors registered in the RePEc Author Service: Jose Maria Da Rocha

Economic Theory, 2017, vol. 64, issue 4, No 2, 633 pages

Abstract: Abstract We calibrate the cost of sovereign defaults using a continuous time model, where government default decisions may trigger a change in the regime of a stochastic TFP process. We calibrate the model to a sample of European countries from 2009 to 2012. By comparing the estimated drift in default relative to that in no-default, we find that TFP falls in the range of 3.70–5.88 %. The model is consistent with observed falls in GDP growth rates and subsequent recoveries and illustrates why fiscal multipliers are small during sovereign debt crises.

Keywords: Default; Sovereign debt; Financial markets; Productivity (search for similar items in EconPapers)
JEL-codes: E30 E44 G15 (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s00199-015-0939-y

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