On the costs of sovereign default in quantitative models

Bernardo Guimaraes and Lucas Tumkas ()
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Lucas Tumkas: Kinea Investimentos

No 2021, Discussion Papers from Centre for Macroeconomics (CFM)

Abstract: Quantitative models building on Eaton and Gersovitz (1981) have become the workhorse in the literature of sovereign default. The vast majority of this work assumes that in case of default, output falls according to an exogenous function. This paper argues that these models’ predictions strongly depend on the default cost function, and commonly used functions yield entirely different results.

Keywords: sovereign debt; default costs; rollover risk; robustness (search for similar items in EconPapers)
JEL-codes: F32 F34 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2020-07
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Persistent link: https://EconPapers.repec.org/RePEc:cfm:wpaper:2021

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