LDC savings rates and debt crises

Endogenous debt crises ¬リニ

We distinguish two types of debt crises: those that are the outcome of exogenous shocks (to productivity growth for instance) and those that are endogenously created, either by self-fulfilling panic in financial markets or by the reckless behavior of “Panglossian” borrowers. After Krugman, we characterize as “Panglossian” those borrowers who only focus on their best growth prospects, anticipati...

Ignorance, Debt and Financial Crises

In this paper we provide a theory of money markets and private money. We show that preserving symmetric ignorance in liquidity provision is welfare maximizing and strictly dominates symmetric or even perfect information. A key property for the functioning of money markets is when agents have no need to ask questions and no incentive to produce private information about the value of the security...

Fiscal Austerity during Debt Crises∗

This paper constructs a dynamic model of government borrowing and default. The government faces a fiscal constraint in that it cannot raise tax rates. By defaulting on the debt, the government can increase domestic consumption. Two types of default arise in this environment: fiscal defaults and aggregate defaults. Fiscal defaults occur because the government cannot service the debt due to its i...

External and Public Debt Crises: Discussion

Internal debt crises and sovereign defaults

In this paper we provide a novel explanation of debt crises in emerging markets. In our model, crises arise because of the inability to punish private debtors when many of them default at the same time. We construct an optimal contracting model in which a successful entrepreneur repays the domestic lender yet an unsuccessful one defaults and liquidates his assets. However, the inability to liqu...