Sovereign debt and consumption smoothing
This paper shows that whether or not a sovereign can borrow to smooth consump- tion depends both on how consumption smoothing is achieved, whether by contingent debt issuance or by contingent debt servicing, and on the penalty for debt repudiation. If a sovereign that repudiated its debt could not borrow again, but could continue to save and to dissave, then contingent debt issuance, without contingent debt servicing, cannot support a positive amount of uncollateralized sovereign debt. But, with this same penalty for repu- diation, contingent debt servicing supports a positive amount of uncollateralized sovereign debt.
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- Grossman, Herschel I & Van Huyck, John B, 1988.
"Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation,"
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- Eaton, Jonathan, 1993. "Sovereign Debt: A Primer," World Bank Economic Review, World Bank Group, vol. 7(2), pages 137-172, May.
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- Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 289-309. Full references (including those not matched with items on IDEAS)
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