Working Paper

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;

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Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Working Papers

Publication Date: 2022-04-26

Number: 792