Sovereign Debt and Consumption Smoothing
This paper shows that whether or not a sovereign can borrow to smooth consumption depends both on how consumption smoothing is achieved, whether by contingent debt issuance or by contingent debt servicing, and on the exact nature of 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, under this same specification of the penalty for repudiation, contingent debt servicing supports a positive amount of uncollateralized sovereign debt.
|Date of creation:||Apr 1997|
|Publication status:||published as Journal of Monetary Economics, Vol. 44, no. 1 (August 1999): 149-158.|
|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
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"Debt with potential repudiation,"
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- Eaton, Jonathan, 1992. "Sovereign debt : a primer," Policy Research Working Paper Series 855, The World Bank.
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