Escape routes from sovereign default risk in the euro area


Semmler, Willi ; Proaño, Christian R.


[img]
Preview
PDF
dp15020.pdf - Published

Download (457kB)

URL: https://ub-madoc.bib.uni-mannheim.de/38865
URN: urn:nbn:de:bsz:180-madoc-388654
Document Type: Working paper
Year of publication: 2015
The title of a journal, publication series: ZEW Discussion Papers
Volume: 15-020
Place of publication: Mannheim
Publication language: English
Institution: Sonstige Einrichtungen > ZEW - Leibniz-Zentrum für Europäische Wirtschaftsforschung
MADOC publication series: Veröffentlichungen des ZEW (Leibniz-Zentrum für Europäische Wirtschaftsforschung) > ZEW Discussion Papers
Subject: 330 Economics
Classification: JEL: E44 , E62 , H63,
Keywords (English): Sovereign default risk , financial stress , macroeconomic dynamics , euro crisis
Abstract: The recent financial and sovereign debt crises around the world have sparked a growing literature on models and empirical estimates of defaultable debt. Frequently households and firms come under default threat, local governments can default, and recently sovereign default threats were eminent for Greece and Spain 2012-13. Moreover, Argentina experienced an actual default in 2001. What causes sovereign default risk, and what are the escape routes from default risk? Previous studies such as Arellano (2008), Roch and Uhlig (2013) and Arellano et al. (2014) have provided theoretical models to explore the main dynamics of sovereign defaults. These models can be characterized as threshold models in which there is a convergence toward a good no-default equilibrium below the threshold and a default equilibrium above the threshold. However, in these models aggregate output is exogenous, so that important macroeconomic feedback effects are not taken into account. In this paper, we 1) propose alternative model variants suitable for certain types of countries in the EU where aggregate output is endogenously determined and where financial stress plays a key role, 2) show how these model variants can be solved through the Nonlinear Model Predictive Control numerical technique, and 3) present some empirical evidence on the nonlinear dynamics of output, sovereign debt and financial stress in some euro area and other industrialized countries.

Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.




+ Citation Example and Export

Semmler, Willi ; Proaño, Christian R. (2015) Escape routes from sovereign default risk in the euro area. Open Access ZEW Discussion Papers Mannheim 15-020 [Working paper]
[img]
Preview


+ Search Authors in

+ Download Statistics

Downloads per month over past year

View more statistics



You have found an error? Please let us know about your desired correction here: E-Mail


Actions (login required)

Show item Show item