Self-inflicted debt crises

Preventing Self-Fulfilling Debt Crises Additional Results

This document contains additional derivations that have been omitted in the main appendix, but which a reader might be interested in. In Section 1, I derive the expression for the change in the default threshold A∗ when the government implements the policy change with probability p ∈ (0, 1). In Section 2, I provide a detailed proof of Proposition B.1 reported in Section B.1 of the Appendix. In ...

Endogenous debt crises ¬リニ

We distinguish two types of debt crises: those that are the outcome of exogenous shocks (to productivity growth for instance) and those that are endogenously created, either by self-fulfilling panic in financial markets or by the reckless behavior of “Panglossian” borrowers. After Krugman, we characterize as “Panglossian” those borrowers who only focus on their best growth prospects, anticipati...

Fiscal Austerity during Debt Crises∗

This paper constructs a dynamic model of government borrowing and default. The government faces a fiscal constraint in that it cannot raise tax rates. By defaulting on the debt, the government can increase domestic consumption. Two types of default arise in this environment: fiscal defaults and aggregate defaults. Fiscal defaults occur because the government cannot service the debt due to its i...

Ignorance, Debt and Financial Crises

In this paper we provide a theory of money markets and private money. We show that preserving symmetric ignorance in liquidity provision is welfare maximizing and strictly dominates symmetric or even perfect information. A key property for the functioning of money markets is when agents have no need to ask questions and no incentive to produce private information about the value of the security...

External and Public Debt Crises: Discussion