Rare Disasters, Financial Development, and Sovereign Debt

Sergio Rebelo (), Neng Wang and Jinqiang Yang

No 13202, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We propose a model of sovereign debt in which countries vary in their level of financial development, defined as the extent to which they can issue debt denominated in domestic currency in international capital markets. We show that low levels of financial development generate the "debt intolerance'' phenomenon that plagues emerging markets: it reduces overall debt capacity, increases credit spreads, and limits the country's ability to smooth consumption.

Keywords: Sovereign debt; Financial development (search for similar items in EconPapers)
JEL-codes: F34 (search for similar items in EconPapers)
Date: 2018-09
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Citations: View citations in EconPapers (9)

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Working Paper: Rare Disasters, Financial Development, and Sovereign Debt (2018)
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