An ergodic theory of sovereign default

Damian Pierri
Authors registered in the RePEc Author Service: Hernán D. Seoane

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: We present the conditions under which the dynamics of a sovereign default model of private external debt are stationary, ergodic and globally stable. As our results are constructive, the model can be used for the accurate computation of global long run stylized facts. We show that default can be used to derive a stable unconditional distribution (i.e., a stable stochastic steady state), one for each possible event, which in turn allows us to characterize globally positive probability paths. We show that the stable and the ergodic distribution are actually the same object. We found that there are 3 type of paths: non-sustainable and sustainable; among this last category, trajectories can be either stable or unstable. In the absence of default, nonsustainable and unstable paths generate explosive trajectories for debt. By deriving the notion of stable state space, we show that the government can use the default of private external debt as a stabilization policy.

Keywords: Default; Private; External; Debt; Ergodicity; Stability (search for similar items in EconPapers)
JEL-codes: C02 E10 E61 F41 (search for similar items in EconPapers)
Date: 2022-12-05
New Economics Papers: this item is included in nep-dge, nep-fdg and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://e-archivo.uc3m.es/rest/api/core/bitstreams ... f405c911b4e0/content (application/pdf)

Related works:
Working Paper: An Ergodic Theory of Sovereign Default (2022)
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:cte:werepe:36164

Access Statistics for this paper

More papers in UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía
Bibliographic data for series maintained by Ana Poveda ().