Commitment and sovereign default risk

Juan Hatchondo, Francisco Roch and Leonardo Martinez

No 927, 2018 Meeting Papers from Society for Economic Dynamics

Abstract: We solve a sovereign default model with long-term debt assuming that the government can commit to future debt issuances. Comparing model simulations with and without commitment we nd that (i) commitment explains most of the default risk in the simulations of the model without commitment, and (ii) the government wants to commit to a scal policy that is more procyclical than the one in the model without commitment. Welfare gains from commitment can be substantial.

Date: 2018
New Economics Papers: this item is included in nep-dge
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed018:927

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