Debt Crises: For Whom the Bell Tolls

Harold Cole, Daniel Neuhann, Guillermo Ordoñez

NBER Working Paper No. 22330
Issued in June 2016
NBER Program(s):AP, EFG, IFM, ME, PE

What a country has done in the past, and what other countries are doing in the present, can feedback for good or for ill in debt markets. We develop a simple model of sovereign bond markets with global investors and endogenous information acquisition about fundamental default probabilities. This model displays hysteresis and contagion in sovereign bond spreads. Small fundamental shocks in one country can induce investors to acquire information, generating price volatility and increased risk premia. These changes may also induce investors to rebalance their portfolio, generating market segmentation and information acquisition in seemingly unrelated economies. Information regimes may persist over time, requiring large improvements in fundamentals to return to more stable bond spread conditions.

You may purchase this paper on-line in .pdf format from ($5) for electronic delivery.

Access to NBER Papers

You are eligible for a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.


Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22330

Users who downloaded this paper also downloaded* these:
Gourinchas, Philippon, and Vayanos w22370 The Analytics of the Greek Crisis
Krueger, Mitman, and Perri w22319 Macroeconomics and Household Heterogeneity
Aguiar, Chatterjee, Cole, and Stangebye w22125 Quantitative Models of Sovereign Debt Crises
Galí and Monacelli w22489 Understanding the Gains from Wage Flexibility: The Exchange Rate Connection
Campbell w5031 Some Lessons from the Yield Curve
NBER Videos

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email:

Contact Us