A Fiscal Theory of Sovereign Risk

Martín Uribe (mu2166@columbia.edu)

No 9221, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper presents a fiscal theory of sovereign risk and default. Under certain monetary-fiscal regimes, the risk of default, and thus the emergence of sovereign risk premia, are inevitable. The paper characterizes the equilibrium processes of the sovereign risk premium and the default rate under a number of alternative monetary policy arrangements. Under some of the policy environments considered, the expected default rate and the sovereign risk premium are zero although the government defaults regularly. Under other monetary regimes the default rate and the sovereign risk premium are serially correlated and therefore forecastable. Environments are characterized under which delaying default is counterproductive.

JEL-codes: E6 F41 (search for similar items in EconPapers)
Date: 2002-09
New Economics Papers: this item is included in nep-dge and nep-rmg
Note: EFG IFM
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Citations: View citations in EconPapers (14)

Published as Uribe, Martin. “A Fiscal Theory of Sovereign Risk." Journal of Monetary Economics 53 (November 2006): 1857-1875.

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Journal Article: A fiscal theory of sovereign risk (2006)
Working Paper: A fiscal theory of sovereign risk (2002)
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