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On the Role of Debt Maturity in a Model with Sovereign Risk and Financial Frictions

Author

Listed:
  • Stéphane Auray

    (CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - Groupe ENSAE-ENSAI - Groupe des Écoles Nationales d'Économie et Statistique - X - École polytechnique - IP Paris - Institut Polytechnique de Paris - ENSAE Paris - École Nationale de la Statistique et de l'Administration Économique - Groupe ENSAE-ENSAI - Groupe des Écoles Nationales d'Économie et Statistique - IP Paris - Institut Polytechnique de Paris - CNRS - Centre National de la Recherche Scientifique)

  • Aurélien Eyquem

    (GATE Lyon Saint-Étienne - Groupe d'Analyse et de Théorie Economique Lyon - Saint-Etienne - ENS de Lyon - École normale supérieure de Lyon - Université 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

We develop a model with financial frictions and sovereign default risk where the maturity of public debt is allowed to be larger than one period. When the debt portfolio has longer average maturities, public debt increases less in the event of a crisis, reducing the size of the subsequent fiscal consolidation through distorsionary taxes or public spending, with positive effects on welfare. In addition, we provide some results suggesting that optimized fiscal responses to a crisis depend on the average maturity of the debt portfolio.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Stéphane Auray & Aurélien Eyquem, 2019. "On the Role of Debt Maturity in a Model with Sovereign Risk and Financial Frictions," Post-Print halshs-01661047, HAL.
    • Handle: RePEc:hal:journl:halshs-01661047
    DOI: 10.1017/S136510051700061X
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    Cited by:

    1. Perego, Erica, 2020. "Sovereign risk and asset market dynamics in the euro area," Journal of International Money and Finance, Elsevier, vol. 109(C).
    2. Dallal Bendjellal, 2022. "Sovereign Risk, Financial Fragility and Debt Maturity," Working Papers hal-03792522, HAL.
    3. Dallal Bendjellal, 2022. "Sovereign Risk, Financial Fragility and Debt Maturity," AMSE Working Papers 2222, Aix-Marseille School of Economics, France.
    4. Eyquem, Aurélien & Poilly, Céline & Belianska, Anna, 2023. "On portfolio frictions, asset returns and volatility," European Economic Review, Elsevier, vol. 160(C).

    More about this item

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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