TY  - JOUR
AU  - Uribe,Martin
TI  - A Fiscal Theory of Sovereign Risk
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 9221
PY  - 2002
Y2  - September 2002
UR  - http://www.nber.org/papers/w9221
L1  - http://www.nber.org/papers/w9221.pdf
N1  - Author contact info:
Martin Uribe
Department of Economics
Columbia University
International Affairs Building
New York, NY 10027
Tel: 212 851 4008
Fax: 212 854 8059
E-Mail: martin.uribe@columbia.edu
AB  - This paper presents a fiscal theory of sovereign risk and default. Under certain monetary-fiscal regimes, the risk of default, and thus the emergence of sovereign risk premia, are inevitable. The paper characterizes the equilibrium processes of the sovereign risk premium and the default rate under a number of alternative monetary policy arrangements. Under some of the policy environments considered, the expected default rate and the sovereign risk premium are zero although the government defaults regularly.  Under other monetary regimes the default rate and the sovereign risk premium are serially correlated and therefore forecastable. Environments are characterized under which delaying default is counterproductive.
ER  -