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Partial Default

Author

Listed:
  • Xavier Mateos-Planas

    (Queen Mary University of London)

  • Jose-Victor Rios-Rull

    (University of Minnesota)

  • Cristina Arellano

    (Federal Reserve Bank of Minneapolis)

Abstract

In this paper we produce a theory of partial default applicable to sovereign debt. The theory uses Markovian equilibria and the notion that circulating unpaid coupons of any given country courtail its productive capabilities. As a consequence no issues of equilibrium selection appear in the analysis. The theory allows for renegotiation of the debt which occurs in particular dire circumstances. This theory, in contrast with the ones in the literature, is consistent with the main facts of international debt crises, which we document.

Suggested Citation

  • Xavier Mateos-Planas & Jose-Victor Rios-Rull & Cristina Arellano, 2013. "Partial Default," 2013 Meeting Papers 765, Society for Economic Dynamics.
  • Handle: RePEc:red:sed013:765
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    File URL: https://economicdynamics.org/meetpapers/2013/paper_765.pdf
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    References listed on IDEAS

    as
    1. David Benjamin, 2008. "Recovery Before Redemption," 2008 Meeting Papers 531, Society for Economic Dynamics.
    2. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & Jose-Victor Rios-Rull, 2002. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Centro de Alti­simos Estudios Ri­os Pe©rez(CAERP) 2, Centro de Altisimos Estudios Rios Perez (CAERP).
    3. Xavier Mateos-Planas, 2011. "Consumer default with complete markets," 2011 Meeting Papers 954, Society for Economic Dynamics.
    4. Satyajit Chatterjee & Dean Corbae & Makoto Nakajima & José-Víctor Ríos-Rull, 2007. "A Quantitative Theory of Unsecured Consumer Credit with Risk of Default," Econometrica, Econometric Society, pages 1525-1589.
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    Cited by:

    1. repec:eee:macchp:v2-1697 is not listed on IDEAS
    2. Trebesch, Christoph & Zabel, Michael, 2017. "The output costs of hard and soft sovereign default," European Economic Review, Elsevier, pages 416-432.
    3. Aguiar, M. & Chatterjee, S. & Cole, H. & Stangebye, Z., 2016. "Quantitative Models of Sovereign Debt Crises," Handbook of Macroeconomics, Elsevier.

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