Reputation and Partial Default

Manuel Amador and Christopher Phelan

No 28997, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents a continuous-time reputation model of sovereign debt allowing for both varying levels of partial default and full default. In it, a government can be a non-strategic commitment type, or a strategic opportunistic type, and a government's reputation is its equilibrium Bayesian posterior of being the commitment type. Our equilibrium has that for bond levels reachable by both types without defaulting, bigger partial defaults (or bigger haircuts for bond holders) imply higher interest rates for subsequent bond issuances, as in the data.

JEL-codes: F34 F41 (search for similar items in EconPapers)
Date: 2021-07
New Economics Papers: this item is included in nep-dge, nep-gth, nep-opm and nep-ore
Note: IFM
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Citations: View citations in EconPapers (3)

Published as Manuel Amador & Christopher Phelan, 2023. "Reputation and Partial Default," American Economic Review: Insights, vol 5(2), pages 158-172.

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