The productivity cost of sovereign default: evidence from the European debt crisis

Alonso-Ortiz, Jorge; Colla, Esteban; Rocha, José María Da

doi:10.1007/s00199-015-0939-y

Cited by 6 publications

(2 citation statements)

References 25 publications

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“…Alonso-Ortiz et al (2015) discuss how part of the sovereign-default literature coincides in setting the cost of default at a fall in aggregate productivity of around 5 percent. They use a calibrated continuous time sovereign default model where government default may trigger a change in the regime of a stochastic productivity process and find evidence in favor of productivity falls in the range of 3.7-5.9 percent.…”

Section: Calibrationmentioning

confidence: 99%

Commodity price risk management and fiscal policy in a sovereign default model

López-Martín

Leal

Fritscher

2019

Journal of International Money and Finance

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. open-economy model of sovereign default, featuring endogenous fiscal policy and stochastic commodity revenues. The model accounts for a positive correlation of commodity revenues with government expenditures and a negative correlation with tax rates. We quantitatively document the extent to which the utilization of different financial hedging instruments by the government contributes to lowering the volatility of different macroeconomic variables and their correlation with commodity revenues. An event analysis illustrates how financial hedging instruments moderate fiscal adjustment in response to significant falls in the price of commodities. Keywords: commodity revenues, hedging, indexed bonds, fiscal policy, sovereign default JEL Classification: F34, F41, F44 Terms of use: Documents inResumen: Los precios de las materias primas son un determinante importante de la política fiscal y del ciclo económico en numerosas economías en desarrollo. Analizamos un modelo dinámico y estocástico de una economía pequeña y abierta con incumplimiento de pago de deuda soberana, considerando política fiscal endógena e ingresos estocásticos de materias primas. El modelo explica una correlación positiva de los ingresos por materias primas con el gasto del gobierno y una correlación negativa con la tasa de impuestos. Documentamos de manera cuantitativa en qué medida la utilización de diferentes instrumentos financieros de cobertura por parte del gobierno contribuye a reducir la volatilidad de diferentes variables macroeconómicas y su correlación con los ingresos por materias primas. El análisis de eventos ilustra cómo los instrumentos financieros de cobertura moderan los ajustes fiscales en respuesta a caídas significativas en el precio de las materias primas. Palabras Clave: ingresos por materias primas, coberturas, bonos indexados, política fiscal, incumplimiento de pago de deuda soberana Documento de Investigación

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Section: Calibrationmentioning

confidence: 99%

Commodity price risk management and fiscal policy in a sovereign default model

López-Martín

Leal

Fritscher

2019

Journal of International Money and Finance

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“…In our model, fiscal policy and the option of receiving financial aid are endogenous, in an otherwise standard sovereign default setup. 2 There are three types of agents: households, government, and foreign lenders. We consider fiscal policy to highlight two features.…”

Section: Model Economymentioning

confidence: 99%

Sobre el papel de la ayuda financiera en un episodio de default

Cuadra¹,

Ramos‐Francia²,

García-Verdú³

2018

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La serie de Documentos de Investigación del Banco de México divulga resultados preliminares de trabajos de investigación económica realizados en el Banco de México con la finalidad de propiciar el intercambio y debate de ideas. El contenido de los Documentos de Investigación, así como las conclusiones que de ellos se derivan, son responsabilidad exclusiva de los autores y no reflejan necesariamente las del Banco de México.The Working Papers series of Banco de México disseminates preliminary results of economic research conducted at Banco de México in order to promote the exchange and debate of ideas. The views and conclusions presented in the Working Papers are exclusively the responsibility of the authors and do not necessarily reflect those of Banco de México.

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Gambling for redemption and self-fulfilling debt crises

Conesa

Kehoe

2017

Econ Theory

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We develop a model for analyzing the sovereign debt crises of 2010-2013 in the Eurozone. The government sets its expenditure-debt policy optimally. The need to sell large quantities of bonds every period leaves the government vulnerable to self-fulfilling crises in which investors, anticipating a crisis, are unwilling to buy the bonds, thereby provoking the crisis. In this situation, the optimal policy of the government is to reduce its debt to a level where crises are not possible. If, however, the economy is in a recession where there is a positive probability of recovery in fiscal revenues, the government may optimally choose to "gamble for redemption," running deficits and increasing its debt, thereby increasing its vulnerability to crises.

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The productivity cost of sovereign default: evidence from the European debt crisis

Cited by 6 publications

References 25 publications

Commodity price risk management and fiscal policy in a sovereign default model

Commodity price risk management and fiscal policy in a sovereign default model

Sobre el papel de la ayuda financiera en un episodio de default

Gambling for redemption and self-fulfilling debt crises

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