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

Author

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  • Pauline Gandré

    (Ecole Normale Supérieure de Lyon-GATE-L-SE)

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.

Suggested Citation

  • Pauline Gandré, 2015. "Domestic creditors as last lenders in debt crises: a simple model with multiple equilibria," Economics Bulletin, AccessEcon, vol. 35(4), pages 2915-2928.
  • Handle: RePEc:ebl:ecbull:eb-15-00676
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Debt crises; Domestic creditors; Multiple equilibria;
    All these keywords.

    JEL classification:

    • F3 - International Economics - - International Finance
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates

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