Reputation and Sovereign Default

This paper presents a continuous?time model of sovereign debt. In it, relatively impatient government's hidden type switches back and forth between commitment type, which cannot default, an opportunistic can, where we assume outside lenders have particular beliefs regarding how should borrow for any given level debt bond price. Markov equilibrium, the mimics when borrowing, revealing its only by defaulting on at random times. The equilibrium features “graduation date”: finite amount time since last after reputation reaches highest is unaffected not defaulting. Before such date, always increases country's reputation. For countries that recently defaulted, prices total are increasing functions default. defaulted (i.e., those graduated), constant.