Systemic Debt Crises in International Disequilibrium System

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...

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...

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...

Sovereign Debt Crises and International Financial Contagion: Estimating Effects in an Endogenous Network

In an integrated global financial system, a sovereign default raises concerns of financial contagion to other countries. We develop and estimate an equilibrium model featuring a network of international borrowing and lending. In the model, the network structure of borrowing-lending relationships arises endogenously and results in the propagation of financial shocks across countries. We estimate...

External and Public Debt Crises: Discussion