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Sovereign debt and incentives to default with uninsurable risks
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Bloise, Gaetano, Polemarchakis, H. M. and Vailakis, Yiannis (2016) Sovereign debt and incentives to default with uninsurable risks. Working Paper. Coventry: University of Warwick. Department of Economics. Warwick economics research papers series (WERPS) (1107). (Unpublished)
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Official URL: http://www2.warwick.ac.uk/fac/soc/economics/resear...
Abstract
Sovereign debt is not sustainable even in the presence of uninsurable risks; which extends the result of Bulow
and Rogoff (1989). But the argument is not as general. Indeed, examples show that positive borrowing may be
enforced even though the sovereign’s natural debt limits, corresponding to the most pessimistic evaluation of future
endowment, are finite. Unsustainable sovereign debt in incomplete asset markets requires a strong version of high
implied interest rates: the value of the most optimistic evaluation of future endowment is finite
Keywords: Sovereign risk, Ponzi games, Reputational debt, Incomplete markets.
JEL Classification: F34, H63.
Item Type: | Working or Discussion Paper (Working Paper) | ||||
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Subjects: | H Social Sciences > HJ Public Finance | ||||
Divisions: | Faculty of Social Sciences > Economics | ||||
Library of Congress Subject Headings (LCSH): | Debts, Public | ||||
Series Name: | Warwick economics research papers series (WERPS) | ||||
Publisher: | University of Warwick. Department of Economics | ||||
Place of Publication: | Coventry | ||||
ISSN: | 0083-7350 | ||||
Official Date: | January 2016 | ||||
Dates: |
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Number: | 1107 | ||||
Number of Pages: | 29 | ||||
Institution: | University of Warwick | ||||
Status: | Not Peer Reviewed | ||||
Publication Status: | Unpublished | ||||
Access rights to Published version: | Open Access (Creative Commons) | ||||
Description: | Also appears as CRETA Discussion Paper No. 15 |
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Funder: | Italy. Ministero dell'istruzione, dell'università e della ricerca (MIUR), European Research Council (ERC), Seventh Framework Programme (European Commission) (FP7), France. Agence nationale de la recherche (ANR) | ||||
Grant number: | 240983 (FP7) | ||||
Version or Related Resource: | This paper also appears as CRETA Discussion Paper No: 15 | ||||
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