On sovereign default with time-varying interest rates

Bloise, G. and Vailakis, Y. (2021) On sovereign default with time-varying interest rates. Review of Economic Dynamics, (doi: 10.1016/j.red.2021.03.001) (In Press)

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Abstract

We extend and refine Aguiar and Amador (2019)'s contraction approach to Eaton and Gersovitz (1981)'s sovereign debt model. In particular, we encompass time-varying interest rates and growth. We show that, when long-term interest rates exceed growth, equilibrium is unique and can be computed via contraction mapping. The method unifies separate branches of literature, showing that the contraction property is the reflection of previous arbitrage arguments based on replication, inspired by Bulow and Rogoff (1989).

Item Type:Articles
Additional Information:Gaetano Bloise acknowledges the financial support of the Italian Ministry of Education (PRIN 20157NH5TP_007). Yiannis Vailakis acknowledges the financial support of an ERC starting grant (FP7, Ideas specific program, Project 240983 DCFM) and of two ANR research grants (Projects Novo Tempus and FIRE); also the hospitality of the Australian National University.
Status:In Press
Refereed:Yes
Glasgow Author(s) Enlighten ID:Vailakis, Professor Yiannis
Authors: Bloise, G., and Vailakis, Y.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Review of Economic Dynamics
Publisher:Elsevier
ISSN:1094-2025
ISSN (Online):1096-6099
Published Online:17 March 2021
Copyright Holders:Copyright © 2021 Crown Copyright
First Published:First published in Review of Economic Dynamics 2021
Publisher Policy:Reproduced in accordance with the publisher copyright policy
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