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Sovereign default risk and volatility

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  • Daude, Christian

Abstract

In a model of sovereign debt with endogenous default, we find a non-monotonic relationship between default risk and volatility, reflecting a trade-off between prudence and the insurance value of default. We show that this feature also holds in the data.

Suggested Citation

  • Daude, Christian, 2012. "Sovereign default risk and volatility," Economics Letters, Elsevier, vol. 114(1), pages 47-50.
    • Handle: RePEc:eee:ecolet:v:114:y:2012:i:1:p:47-50
    DOI: 10.1016/j.econlet.2011.09.004
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    References listed on IDEAS

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    1. Yue, Vivian Z., 2010. "Sovereign default and debt renegotiation," Journal of International Economics, Elsevier, vol. 80(2), pages 176-187, March.
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    More about this item

    Keywords

    Volatility; Default; Sovereign debt;
    All these keywords.

    JEL classification:

    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

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