Fiscal Rules and the Sovereign Default Premium

Juan Hatchondo, Francisco Roch and Leonardo Martinez

No 2012/030, IMF Working Papers from International Monetary Fund

Abstract: This paper finds optimal fiscal rule parameter values and measures the effects of imposing fiscal rules using a default model calibrated to an economy that in the absence of a fiscal rule pays a significant sovereign default premium. The paper also studies the case in which the government conducts a voluntary debt restructuring to capture the capital gains from the increase in its debt market value implied by a rule announcement. In addition, the paper shows how debt ceilings may reduce the procyclicality of fiscal policy and thus consumption volatility.

Keywords: WP; debt ceiling; default premium; fiscal rules; fiscal consolidation; default; sovereign default premium; debt exchange; countercyclical policy; endogenous borrowing constraints; long-term debt; debt dilution; fiscal rule; debt level; rule announcement; issued debt; announcement debt path; Personal income; Debt limits; Europe (search for similar items in EconPapers)
Pages: 28
Date: 2012-01-01
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Citations: View citations in EconPapers (32)

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Related works:
Journal Article: Fiscal Rules and the Sovereign Default Premium (2022)
Working Paper: Fiscal rules and the Sovereign Default Premium (2015)
Working Paper: Fiscal rules and the sovereign default premium (2015)
Working Paper: Fiscal rules and the sovereign default premium (2012)
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