On Wars, Sanctions and Sovereign Default
Abstract: This paper explores the role of restrictions on the use of international reserves as economic sanctions. We develop a simple model of the strategic game between a sanctioning (creditor) country and a sanctioned (debtor) country. We show how the sanctioning country should impose restrictions optimally, internalizing the geopolitical benefits and the financial costs of a potential default from the sanctioned country.
Keywords: Wars; International reserves; Financial sanctions; Sovereign default;
JEL Classification: F51; F50; F30;
Provider: Federal Reserve Bank of Minneapolis
Part of Series: Working Papers
Publication Date: 2022-04-26