@article{4d7eac8f404549bcb57c7140fa7be8fc,
title = "Sovereign default: the role of expectations",
abstract = "In the standard model of sovereign default, as in Aguiar and Gopinath (2006) or Arellano (2008), default is driven by fundamentals alone. There is no independent role for expectations. We show that small variations of that model are consistent with multiple interest rate equilibria, similar to the ones found in Calvo (1988). For distributions of output that are commonly used in the literature, the high interest rate equilibria have properties that make them fragile. Once output is drawn from a distribution with both good and bad times, however, it is possible to have robust high interest rate equilibria.",
keywords = "Good and bad times, Multiple equilibria, Sovereign default",
author = "Jo{\~a}o Ayres and Gaston Navarro and Nicolini, {Juan Pablo} and Pedro Teles",
note = "Funding Information: We thank Patrick Kehoe for many useful conversations. We also thank the associate editor and two referees, as well as Fernando Alvarez, Manuel Amador, Cristina Arellano, V.V. Chari, In-Koo Cho, Jonathan Eaton, Carlo Galli, Veronica Guerrieri, Jonathan Heathcote, Andy Neumeyer, Fabrizio Perri, Martin Uribe, and Vivian Yue for very useful comments. Nicolini and Teles would like to acknowledge the support of FCT as well as the ADEMU project, “A Dynamic Economic and Monetary Union,” funded by the European Union's Horizon 2020 Program under grant agreement N o 49396 . The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis, the Federal Reserve System, Banco de Portugal, the European System of Central Banks, or the Inter-American Development Bank. Funding Information: We thank Patrick Kehoe for many useful conversations. We also thank the associate editor and two referees, as well as Fernando Alvarez, Manuel Amador, Cristina Arellano, V.V. Chari, In-Koo Cho, Jonathan Eaton, Carlo Galli, Veronica Guerrieri, Jonathan Heathcote, Andy Neumeyer, Fabrizio Perri, Martin Uribe, and Vivian Yue for very useful comments. Nicolini and Teles would like to acknowledge the support of FCT as well as the ADEMU project, “A Dynamic Economic and Monetary Union,” funded by the European Union's Horizon 2020 Program under grant agreement No 49396. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis, the Federal Reserve System, Banco de Portugal, the European System of Central Banks, or the Inter-American Development Bank. Publisher Copyright: {\textcopyright} 2018 Elsevier Inc.",
year = "2018",
month = may,
doi = "10.1016/j.jet.2018.02.006",
language = "English",
volume = "175",
pages = "803--812",
journal = "Journal of Economic Theory",
issn = "0022-0531",
publisher = "Academic Press Inc.",
}
