EconPapers    
Economics at your fingertips  
 

Sovereign Default Triggered by Inability to Repay Debt

Michinao Okachi
Additional contact information
Michinao Okachi: Economist, Institute for Monetary and Economic Studies, Bank of Japan (currently, Department of Economics, Graduate School of Economics and Management, Tohoku University, E-mail: michinao.okachi.e5@tohoku.ac.jp)

No 19-E-10, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: The Greek sovereign default episode in 2012 was characterized by its high debt-to-GDP ratio and the severe economic contraction following the default. Conventional strategic default models designed to analyze a government's incentive to default often fail to replicate these characteristics. To address this issue, we provide a dynamic stochastic general equilibrium (DSGE) model where a sovereign default is triggered by the government's inability to repay its debt. We show that the inability-to-repay model replicates the empirical features observed in Greece, while the conventional strategic default model calibrated to the Greek economy does not.

Keywords: Sovereign Default; Dynamic Stochastic General Equilibrium; Inability to Repay Debt; Strategic Decision to Default; Fiscal Limit; Laffer Curve (search for similar items in EconPapers)
JEL-codes: E32 E44 F34 H63 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-mac
Date: 2019-07
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.imes.boj.or.jp/research/papers/english/19-E-10.pdf (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:ime:imedps:19-e-10

Access Statistics for this paper

More papers in IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan Contact information at EDIRC.
Bibliographic data for series maintained by Kinken ().

 
Page updated 2019-12-11
Handle: RePEc:ime:imedps:19-e-10