Working Paper
Maturity, indebtedness, and default risk
Abstract: In this paper, the authors advance the theory and computation of Eaton-Gersovitz style models of sovereign debt by incorporating long-term debt and proving the existence of an equilibrium price function with the property that the interest rate on debt is increasing in the amount borrowed and implementing a novel method of computing the equilibrium accurately. Using Argentina as a test case, they show that incorporating long-term debt allows the model to match the average external debt-to-output ratio, average spread on external debt, the standard deviation of spreads and simultaneously improve upon the model's ability to account for Argentina's other cyclical facts.
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File(s): File format is application/pdf https://www.philadelphiafed.org/-/media/frbp/assets/working-papers/2011/wp11-33.pdf
Authors
Bibliographic Information
Provider: Federal Reserve Bank of Philadelphia
Part of Series: Working Papers
Publication Date: 2011
Number: 11-33