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Self-Fulfilling Debt Crises, Revisited
We revisit self-fulﬁlling rollover crises by exploring the potential uncertainty introduced by a gap in time (however small) between an auction of new debt and the payment of maturing liabilities. It is well known (Cole and Kehoe, 2000) that the lack of commitment at the time of auction to repayment of imminently maturing debt can generate a run on debt, leading to a failed auction and immediate default. We show that the same lack of commitment leads to a rich set of possible self-fulﬁlling crises, including a government that issues more debt because of the crisis, albeit at depressed ...