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On the costs of sovereign default in quantitative models

Author

Listed:
  • Bernardo Guimaraes

    (Sao Paulo School of Economics (FGV))

  • Lucas Tumkus

    (Kinea Investimentos)

Abstract

Quantitative models building on Eaton and Gersovitz (1981) have become the workhorse in the literature of sovereign default. The vast majority of this work assumes that in case of default, output falls according to an exogenous function. This paper argues that these models’ predictions strongly depend on the default cost function, and commonly used functions yield entirely different results.

Suggested Citation

  • Bernardo Guimaraes & Lucas Tumkus, 2020. "On the costs of sovereign default in quantitative models," Discussion Papers 2021, Centre for Macroeconomics (CFM).
    • Handle: RePEc:cfm:wpaper:2021
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    References listed on IDEAS

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    More about this item

    Keywords

    sovereign debt; default costs; rollover risk; robustness;
    All these keywords.

    JEL classification:

    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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