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Domestic creditors as last lenders in debt crises: a simple model with multiple equilibria

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  • Pauline Gandré

    (GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet - Saint-Étienne - CNRS - Centre National de la Recherche Scientifique)

Abstract

It is widely acknowledged that the ratios of public debt over GDP reached historically high levels in the Euro area during the recent sovereign debt crisis. More unnoticed however is the simultaneous increase in the share of government debt held by residents that has started in late 2008 in most fragile economies of the area. This paper develops a simple theoretical framework, in which multiple equilibria arise, to explain why exogenous increases in the debt level may cause this share to increase, due to distinct expected returns on domestic sovereign debt for domestic and foreign creditors in times of turmoil.

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  • Pauline Gandré, 2015. "Domestic creditors as last lenders in debt crises: a simple model with multiple equilibria," Post-Print halshs-01264630, HAL.
    • Handle: RePEc:hal:journl:halshs-01264630
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01264630
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    Keywords

    Debt crises; Domestic creditors; Multiple equilibria;
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