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Long-Term Sovereign Debt: A Steady State Analysis

Author

Listed:
  • Zachary Stangebye

    (Notre Dame University)

Abstract
A model of long-term sovereign debt with a fiscal rule and endogenous default is explored in which debt maturity governs the number of risky steady states. Generally, there is a good steady state with high investment and low indebtedness and default frequencies, and a bad steady state with the reverse. The multiplicity arises when maturity tames an aggressive feedback loop that emerges in the sovereign budget set between debt service and required issuance as expected default frequencies rise. This feedback loop delivers a unique risky steady state at shorter maturities. Local dynamics and policy consequences are explored quantitatively. (Copyright: Elsevier)

Suggested Citation

  • Zachary Stangebye, 2023. "Long-Term Sovereign Debt: A Steady State Analysis," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 48, pages 107-131, April.
    • Handle: RePEc:red:issued:18-205
    DOI: 10.1016/j.red.2022.03.002
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    More about this item

    Keywords

    Long-term sovereign debt; steady state; equilibrium multiplicity;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • G01 - Financial Economics - - General - - - Financial Crises
    • H63 - Public Economics - - National Budget, Deficit, and Debt - - - Debt; Debt Management; Sovereign Debt

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