Preventing Self-Fulfilling Debt Crises Additional Results

This document contains additional derivations that have been omitted in the main appendix, but which a reader might be interested in. In Section 1, I derive the expression for the change in the default threshold A∗ when the government implements the policy change with probability p ∈ (0, 1). In Section 2, I provide a detailed proof of Proposition B.1 reported in Section B.1 of the Appendix. In Section 3, I solve the complete information model and characterize the fragility region. I also derive the suffi cient bound for B1, which ensures that the government always wants to borrow a positive amount of funds in the fragility region, and the suffi cient bound on Z, which ensures that the government’s desired unconstrained borrowing is strictly increasing in A. Finally, in Section 4, I provide additional simulation results that have been omitted from the paper.