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- Title
HETEROGENEOUS BORROWERS IN QUANTITATIVE MODELS OF SOVEREIGN DEFAULT.
- Authors
Hatchondo, Juan Carlos; Martinez, Leonardo; Sapriza, Horacio
- Abstract
We extend the model used in recent quantitative studies of sovereign default, allowing policymakers of different types to stochastically alternate in power. We show that a default episode may be triggered by a change in the type of policymaker in office, and that such a default is likely to occur only if there is enough political stability and if policymakers encounter poor economic conditions. Under high political stability, political turnover enables the model to generate a weaker correlation between economic conditions and default decisions, a higher and more volatile spread, and lower borrowing levels after a default episode.
- Subjects
POLICY sciences; CREDIT; ECONOMIC history; POLITICAL stability; DEFAULT reasoning
- Publication
International Economic Review, 2009, Vol 50, Issue 4, p1129
- ISSN
0020-6598
- Publication type
Article
- DOI
10.1111/j.1468-2354.2009.00562.x