EconPapers    
Economics at your fingertips  
 

Seigniorage and Sovereign Default: The Response of Emerging Markets to COVID-19

Emilio Espino (), Julian Kozlowski (), Fernando Martin () and Juan Sanchez

No 2020-017, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Monetary policy affects the tradeoffs faced by governments in sovereign default models. In the absence of lump-sum taxation, governments rely on both distortionary taxes and seigniorage to finance expenditure. Furthermore, monetary policy adds a time-consistency problem in debt choice, which may mitigate or exacerbate the incentives to accumulate debt. A deterioration of the terms-of-trade leads to an increase in sovereign-default risk and inflation, and a reduction in growth, which are consistent with the empirical evidence for emerging economies. An unanticipated shock resembling the COVID-19 pandemic generates a significant currency depreciation, increased inflation, and distress in government finances.

Keywords: Default; Fiscal Policy; Sovereign Debt; Emerging Markets; Inflation; Time-consistency; Crises; COVID-19; Seigniorage; Country Risk; Exchange Rate (search for similar items in EconPapers)
JEL-codes: E52 E62 F34 F41 G15 (search for similar items in EconPapers)
Pages: 52 pages
Date: 2020-07-10, Revised 2020-08-07
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3) Track citations by RSS feed

Downloads: (external link)
https://s3.amazonaws.com/real.stlouisfed.org/wp/2020/2020-017.pdf Full Text (application/pdf)

Related works:
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:fip:fedlwp:88355

Ordering information: This working paper can be ordered from

DOI: 10.20955/wp.2020.017

Access Statistics for this paper

More papers in Working Papers from Federal Reserve Bank of St. Louis Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2021-01-16
Handle: RePEc:fip:fedlwp:88355