Working Paper
Living in Infamy: Bad Reputations in Emerging Markets
Abstract: We present a model of sovereign borrowing in the presence of default risk and asymmetric information. Optimizing sovereigns come in two persistent types with different levels of patience and hence different proclivities to default and borrow. In a stylized model, we construct a pooling equilibrium that is 'infamous' in the sense that the patient sovereign is constrained to borrow like the impatient sovereign on the equilibrium path. We argue that this provides an explanation for the observed lack of private capital markets for many low- and middle-income countries, and use the model to evaluate proposed policy interventions aimed at building a good reputation for such countries.
JEL Classification: F21; F34; G15;
https://doi.org/10.20955/wp.2026.012
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https://doi.org/10.20955/wp.2026.012
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Provider: Federal Reserve Bank of St. Louis
Part of Series: Working Papers
Publication Date: 2026-06-15
Number: 2026-012