Sovereign Debt*
Mark Aguiara and Manuel Amadorb, aPrinceton University, Princeton, NJ, USA, bFederal Reserve Bank of Minneapolis, Minneapolis, MN, USA
Abstract
In this chapter, we use a benchmark limited-commitment model to explore key issues in the economics of sovereign debt. After highlighting conceptual issues that distinguish sovereign debt as well as reviewing a number of empirical facts, we use the model to discuss debt overhang, risk-sharing, and capital flows in an environment of limited enforcement. We also discuss recent progress on default and renegotiation; self-fulfilling debt crises; and incomplete markets and their quantitative implications. We conclude with a brief assessment of the current state of the literature ...
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