Juan Carlos Hatchondo Leonardo Martinez Horacio Sapriza
Abstract
We study a standard quantitative model of sovereign default in which the government in a small open economy (SMO) decides how much to save and whether to default on its debt. In contrast with previous quantitative studies, we do not assume that a defaulting country is exogenously excluded from capital markets, and we assume that political parties with different discount factors alternate in power. Preliminary quantitative results indicate that even without assuming exogenous exclusion, after a default episode, the model generates difficulties in market access---in average, for the same level of debt, spreads are higher after default; due to this increase in borrowing costs, capital inflows are initially decreased, and recover slowly after that. We also describe the strategic interaction of governments with different patience
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Publisher Info
Paper provided by Society for Economic Dynamics in its series 2006 Meeting Papers with number
845.
Length: Date of creation: 03 Dec 2006 Date of revision: Handle: RePEc:red:sed006:845
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Find related papers by JEL classification: F34 - International Economics - - International Finance - - - International Lending and Debt Problems F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
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