Living in Infamy: Bad Reputations in Emerging Markets

Zachary Stangebye and Mark Wright

No 2026-012, Working Papers from Federal Reserve Bank of St. Louis

Abstract: We present a model of sovereign borrowing in the presence of default risk and asymmetric information. Optimizing sovereigns come in two persistent types with different levels of patience and hence different proclivities to default and borrow. In a stylized model, we construct a pooling equilibrium that is 'infamous' in the sense that the patient sovereign is constrained to borrow like the impatient sovereign on the equilibrium path. We argue that this provides an explanation for the observed lack of private capital markets for many low- and middle-income countries, and use the model to evaluate proposed policy interventions aimed at building a good reputation for such countries.

Keywords: sovereign debt; sovereign default; market access (search for similar items in EconPapers)
JEL-codes: F21 F34 G15 (search for similar items in EconPapers)
Pages: 58 pages
Date: 2026-06-15
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DOI: 10.20955/wp.2026.012

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