Debt Fragility and Bailouts
This paper studies debt fragility and the sharing of the resulting strategic uncertainty through ex post bailouts. Default arises in equilibrium because of both fundamental shocks and beliefs. The probability of default depends on borrowing rates and, in equilibrium, on the beliefs of lenders about this probability. This interaction creates a strategic complementarity and thus the basis for strategic uncertainty. The paper analyzes the role of credible ex post bailouts as a means of sharing both fundamental and strategic uncertainty. While bailouts may occur in some states, debt fragility remains.
|Date of creation:||Sep 2012|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Bigelow, John & Cooper, Russell & Ross, Thomas W, 1993.
"Warranties without Commitment to Market Participation,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 85-100, February.
- BIGELOW, J. & COOPER, R. & Tom Ross, 1988. "Warranties Without Commitment To Market Participation," Carleton Industrial Organization Research Unit (CIORU) 88-02, Carleton University, Department of Economics.
- Russell Cooper & Hubert Kempf & Dan Peled, 2008.
"Is It Is Or Is It Ain'T My Obligation? Regional Debt In A Fiscal Federation,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(4), pages 1469-1504, November.
- Russell Cooper & Hubert Kempf & Dan Peled, 2005. "Is It Is or Is It Ain't My Obligation? Regional Debt in a Fiscal Federation," NBER Working Papers 11655, National Bureau of Economic Research, Inc.
- Cooper, Russell W. & Kempf, Hubert & Peled, Dan, 2005. "Is it is or is it ain't my obligation? Regional debt in a fiscal federation," Working Papers 0507, Federal Reserve Bank of Dallas.
- Calvo, Guillermo A, 1988. "Servicing the Public Debt: The Role of Expectations," American Economic Review, American Economic Association, vol. 78(4), pages 647-661, September.
- Paul De Grauwe & Yuemei Ji, 2012.
"Mispricing of Sovereign Risk and Multiple Equilibria in the Eurozone,"
LICOS Discussion Papers
30412, LICOS - Centre for Institutions and Economic Performance, KU Leuven.
- De Grauwe, Paul & Ji, Yuemei, 2012. "Mispricing of Sovereign Risk and Multiple Equilibria in the Eurozone," CEPS Papers 6548, Centre for European Policy Studies.
- Harold L. Cole & Timothy J. Kehoe, 2000. "Self-Fulfilling Debt Crises," Review of Economic Studies, Oxford University Press, vol. 67(1), pages 91-116.
- Tirole, Jean, 1985. "Asset Bubbles and Overlapping Generations," Econometrica, Econometric Society, vol. 53(6), pages 1499-1528, November.
- Francisco Roch & Harald Uhlig, 2016. "The Dynamics of Sovereign Debt Crises and Bailouts," IMF Working Papers 16/136, International Monetary Fund.