NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Nominally Sovereign Debt, Risk Shifting, and Reputation

Herschel I. Grossman, John B. Van Huyck

NBER Working Paper No. 2259 (Also Reprint No. r1843)
Issued in May 1987
NBER Program(s):   ME   EFG

This paper analyzes a reputational equilibrium in a model in which nominally denominated sovereign debt serves to shift risk associated with the unpredictability of tax revenues from the sovereign to its lenders. The analysis answers the following set of related questions: Why would a sovereign refrain from inflating when faced with servicing a large quantity of nominal debt? If a sovereign does not plan to use inflation to repudiate its nominal debts, why would it want to issue nominal debt in the first place? What are the distinguishing features of those sovereigns who are willing and able to issue nominal debts?

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Document Object Identifier (DOI): 10.3386/w2259

Published: Journal of Economics and Business, Vol. 45, Nos. 3 & 4, pp. 341-352 (August , October 1993) citation courtesy of

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