20 Washington Rd
Princeton, NJ 08540
Institutional Affiliation: Princeton University
NBER Working Papers and Publications
|August 2018||Quantitative Sovereign Default Models and the European Debt Crisis|
with Luigi Bocola, Alessandro Dovis: w24981
A large literature has developed quantitative versions of the Eaton and Gersovitz (1981) model to analyze default episodes on external debt. In this paper, we study whether the same framework can be applied to the analysis of debt crises in which domestic public debt plays a prominent role. We consider a model where a government can issue debt to both domestic and foreign investors, and we derive conditions under which their sum is the relevant state variable for default incentives. We then apply our framework to the European debt crisis. We show that matching the cyclicality of public debt ---rather than that of external debt--- allows the model to better capture the empirical distribution of interest rate spreads and gives rise to more realistic crises dynamics.
Published: Luigi Bocola & Gideon Bornstein & Alessandro Dovis, 2019. "Quantitative sovereign default models and the European debt crisis," Journal of International Economics, .
|June 2018||Quantitative Sovereign Default Models and the European Debt Crisis|
with Luigi Bocola, Alessandro Dovis
in NBER International Seminar on Macroeconomics 2018, Jordi Galí and Kenneth West, organizers
|November 2017||Moral Hazard Misconceptions: the Case of the Greenspan Put|
with Guido Lorenzoni: w24050
Policy discussions on financial market regulation tend to assume that whenever a corrective policy is used ex post to ameliorate the effects of a crisis, there are negative side effects in terms of moral hazard ex ante. This paper shows that this is not a general theoretical prediction, focusing on the case of monetary policy interventions ex post. In particular, we show that if the central bank does not intervene by monetary easing following a crisis, this creates an aggregate demand externality that makes borrowing ex ante inefficient. If instead the central bank follows the optimal discretionary policy and intervenes to stabilize asset prices and real activity, we show examples in which the aggregate demand externality disappears, reducing the need for ex ante intervention.
Published: Gideon Bornstein & Guido Lorenzoni, 2018. "Moral Hazard Misconceptions: The Case of the Greenspan Put," IMF Economic Review, vol 66(2), pages 251-286. citation courtesy of
|May 2017||Lags, Costs, and Shocks: An Equilibrium Model of the Oil Industry|
with Per Krusell, Sergio Rebelo: w23423
We use a new micro data set that covers all oil fields in the world to estimate a stochastic industry-equilibrium model of the oil industry with two alternative market structures. In the first, all firms are competitive. In the second, OPEC firms act as a cartel. This effort is a first step towards studying the importance of ongoing structural changes in the oil market in a general-equilibrium model of the world economy. We analyze the impact of the advent of fracking on the volatility of oil prices. Our model predicts a large decline in this volatility.