EconPapers    
Economics at your fingertips  
 

Sovereign default risk with heterogenous borrowers

Juan Hatchondo, Leonardo Martinez and Horacio Sapriza

No 845, 2006 Meeting Papers from Society for Economic Dynamics

Abstract: We study a standard quantitative model of sovereign default in which the government in a small open economy (SMO) decides how much to save and whether to default on its debt. In contrast with previous quantitative studies, we do not assume that a defaulting country is exogenously excluded from capital markets, and we assume that political parties with different discount factors alternate in power. Preliminary quantitative results indicate that even without assuming exogenous exclusion, after a default episode, the model generates difficulties in market access---in average, for the same level of debt, spreads are higher after default; due to this increase in borrowing costs, capital inflows are initially decreased, and recover slowly after that. We also describe the strategic interaction of governments with different patience

Keywords: Sovereign Default, Strategic Behavior; Endogenous Borrowing Constraints; Markov Perfect Equilibrium. (search for similar items in EconPapers)
JEL-codes: F34 F41 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge and nep-pbe
Date: 2006-12-03
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://repec.org/sed2006/up.18193.1140057515.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:red:sed006:845

Access Statistics for this paper

More papers in 2006 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC.
Bibliographic data for series maintained by Christian Zimmermann ().

 
Page updated 2019-10-18
Handle: RePEc:red:sed006:845