Sovereign Debt and Consumption Smoothing

Herschel Grossman and Taejoon Han

No 5997, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper shows that whether or not a sovereign can borrow to smooth consumption depends both on how consumption smoothing is achieved, whether by contingent debt issuance or by contingent debt servicing, and on the exact nature of the penalty for debt repudiation. If a sovereign that repudiated its debt could not borrow again, but could continue to save and to dissave, then contingent debt issuance, without contingent debt servicing, cannot support a positive amount of uncollateralized sovereign debt. But, under this same specification of the penalty for repudiation, contingent debt servicing supports a positive amount of uncollateralized sovereign debt.

JEL-codes: F34 H63 (search for similar items in EconPapers)
Date: 1997-04
Note: EFG ME
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as Journal of Monetary Economics, Vol. 44, no. 1 (August 1999): 149-158.

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Journal Article: Sovereign debt and consumption smoothing (1999)
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