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The Dynamics of Sovereign Debt Crises and Bailouts

Motivated by the recent European debt crisis, this paper investigates the scope for a bailout guarantee in a sovereign debt crisis. Defaults may arise from negative income shocks, government impatience or a "sunspot"-coordinated buyers strike. We introduce a bailout agency, and characteriz...

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Bibliographic Details
Main Author: Roch, Francisco
Other Authors: Uhlig, Harald
Format: eBook
Language:English
Published: Washington, D.C. International Monetary Fund 2016
Series:IMF Working Papers
Subjects:
Income
Securities Markets
Finance: General
Public Finance
Financial Risk Management
Financial Crises
National Accounts
International Economics
Public Debt
Open Economy Macroeconomics
Public Finance & Taxation
Sovereign Debt
Debt Default
Debts, Public
Exports And Imports
Capital Market
Finance
Debts, External
External Debt
General Financial Markets: General (includes Measurement And Data)
Debt
Economic & Financial Crises & Disasters
Debt Management
Aggregate Factor Income Distribution
International Lending And Debt Problems
Macroeconomics
Financial Markets
Greece
Online Access:
Collection: International Monetary Fund - Collection details see MPG.ReNa
Description
Summary:Motivated by the recent European debt crisis, this paper investigates the scope for a bailout guarantee in a sovereign debt crisis. Defaults may arise from negative income shocks, government impatience or a "sunspot"-coordinated buyers strike. We introduce a bailout agency, and characterize the minimal actuarially fair intervention that guarantees the no-buyers-strike fundamental equilibrium, relying on the market for residual financing. The intervention makes it cheaper for governments to borrow, inducing them borrow more, leaving default probabilities possibly rather unchanged. The maximal backstop will be pulled precisely when fundamentals worsen
Physical Description:46 pages
ISBN:9781475581027

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