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 Centre for Economic Policy Research

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)

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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)
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