Self-Fulfilling Debt Crises
We characterize the values of government debt and the debt's maturity structure under which financial crises brought on by a loss of confidence in the government can arise within a dynamic, stochastic general equilibrium model. We also characterize the optimal policy response of the government...
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| Veröffentlicht in: | The Review of economic studies 2000-01, Vol.67 (1), p.91-116 |
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| container_end_page | 116 |
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| container_title | The Review of economic studies |
| container_volume | 67 |
| creator | Cole, Harold L. Kehoe, Timothy J. |
| description | We characterize the values of government debt and the debt's maturity structure under which financial crises brought on by a loss of confidence in the government can arise within a dynamic, stochastic general equilibrium model. We also characterize the optimal policy response of the government to the threat of such a crisis. We show that when the country's fundamentals place it inside the crisis zone, the government may be motivated to reduce its debt and exit the crisis zone because this leads to an economic boom and a reduction in the interest rate on the government's debt. We show that this reduction can be gradual if debt is high or the probability of a crisis is low. We also show that, while lengthening the maturity of the debt can shrink the crisis zone, credibility-inducing policies can have perverse effects. |
| doi_str_mv | 10.1111/1467-937X.00123 |
| format | Article |
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| fulltext | fulltext |
| identifier | ISSN: 0034-6527 |
| ispartof | The Review of economic studies, 2000-01, Vol.67 (1), p.91-116 |
| issn | 0034-6527 1467-937X |
| language | eng |
| recordid | cdi_proquest_journals_1634146686 |
| source | Jstor Complete Legacy; Oxford University Press Journals All Titles (1996-Current); Business Source Complete; Periodicals Index Online |
| subjects | Bankers Capital stocks Debt Debt repayment Government Government crises Government spending Loan defaults Public debt Sunspots |
| title | Self-Fulfilling Debt Crises |
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