NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Zachary R. Stangebye

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NBER Working Papers and Publications

April 2017Self-Fulfilling Debt Crises, Revisited: The Art of the Desperate Deal
with Mark Aguiar, Satyajit Chatterjee, Harold Cole: w23312
We revisit self-fulfilling rollover crises by introducing an alternative equilibrium selection that involves bond auctions at depressed but strictly positive equilibrium prices, a scenario in line with observed sovereign debt crises. We refer to these auctions as “desperate deals,” the defining feature of which is a price schedule that makes the government indifferent to default or repayment. The government randomizes at the time of repayment, which we show can be implemented in pure strategies by introducing stochastic political payoffs or external bailouts. Quantitatively, auctions at fire-sale prices are crucial for generating realistic spread volatility.
March 2016Quantitative Models of Sovereign Debt Crises
with Mark Aguiar, Satyajit Chatterjee, Harold Cole: w22125
This chapter is on quantitative models of sovereign debt crises in emerging economies. We interpret debt crises broadly to cover all of the major problems a country can experience while trying to issue new debt, including default, sharp increases in the spread and failed auctions. We examine the spreads on sovereign debt of 20 emerging market economies since 1993 and document the extent to which fluctuations in spreads are driven by country-specific fundamentals, common latent factors and observed global factors. Our findings motivate quantitative models of debt and default with the following features: (i) trend stationary or stochastic growth, (ii) risk averse competitive lenders, (iii) a strategic repayment/borrowing decision, (iv) multi-period debt, (v) a default penalty that include...
 
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