Sovereign Default: The Role of Expectations

Pedro Teles, ,, Gaston Navarro and Juan Pablo Nicolini
Authors registered in the RePEc Author Service: Joao Ayres

No 12750, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: In the standard model of sovereign default, as in Aguiar and Gopinath (2006) or Arellano (2008), default is driven by fundamentals alone. There is no independent role for expectations. We show that small variations of that model are consistent with multiple interest rate equilibria, similar to the ones found in Calvo (1988). For distributions of output that are commonly used in the literature, the high interest rate equilibria have properties that make them fragile. Once output is drawn from a distribution with both good and bad times, however, it is possible to have robust high interest rate equilibria.

Keywords: Good and bad times; Sovereign default; Multiple equilibria (search for similar items in EconPapers)
JEL-codes: E44 F34 (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-cba, nep-dge and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (60)

Downloads: (external link)
https://cepr.org/publications/DP12750 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Journal Article: Sovereign default: The role of expectations (2018)
Working Paper: Sovereign Default: The Role of Expectations (2015)
Working Paper: Sovereign Default: The Role of Expectations (2015)
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:cpr:ceprdp:12750

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP12750

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().