Sovereigns at risk: A dynamic model of sovereign debt and banking leverage

Nuno Coimbra

PSE-Ecole d'économie de Paris (Postprint) from HAL

Abstract: This paper develops a dynamic model with heterogeneous investors and sovereign default to analyze the dynamic link between banking sector capitalization and sovereign bond yields. The banking sector is modelled as operating under a Value-at-Risk (VaR) constraint, which can bind occasionally. As default risk rises, the constraint may bind, generating a fall in demand for sovereign bonds that can be accompanied by a rise in the risk premium if other agents are more risk averse. In turn, the rise in risk premium leads to a feedback effect through debt accumulation dynamics and the probability of government default.

Date: 2020-05
References: Add references at CitEc
Citations: View citations in EconPapers (4)

Published in Journal of International Economics, 2020, 124, ⟨10.1016/j.jinteco.2020.103298⟩

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
Journal Article: Sovereigns at risk: A dynamic model of sovereign debt and banking leverage (2020)
Working Paper: Sovereigns at risk: A dynamic model of sovereign debt and banking leverage (2020)
Chapter: Sovereigns at Risk: A Dynamic Model of Sovereign Debt and Banking Leverage (2019)
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:hal:pseptp:halshs-02491806

DOI: 10.1016/j.jinteco.2020.103298

Access Statistics for this paper

More papers in PSE-Ecole d'économie de Paris (Postprint) from HAL
Bibliographic data for series maintained by Caroline Bauer ().