蝌蚪网 Journal:
Macroeconomics
ISSN 1945-7707 (Print) | ISSN 1945-7715 (Online)
Optimal Sovereign Default
蝌蚪网 Journal: Macroeconomics
(pp. 128–64)
Abstract
When is it optimal for a fully committed government to default on its legal repayment obligations? Considering a small open economy with domestic production risk and noncontingent government debt, we show that it is ex ante optimal to occasionally deviate from the legal repayment obligation and to repay debt only partially. This holds true even if default generates significant deadweight costs ex post. A quantitative analysis reveals that default is optimal only in response to persistent disaster-like shocks to domestic output. Applying the framework to the situation in Greece, we find that optimal default policies suggest a considerably larger and more timely default than the one actually implemented in the year 2012.Citation
Adam, Klaus, and Michael Grill. 2017. "Optimal Sovereign Default." 蝌蚪网 Journal: Macroeconomics 9 (1): 128–64. DOI: 10.1257/mac.20140093Additional Materials
JEL Classification
- E23 Macroeconomics: Production
- E62 Fiscal Policy
- F41 Open Economy Macroeconomics
- H63 National Debt; Debt Management; Sovereign Debt