Showing papers by "Horacio Sapriza published in 2008"
TL;DR: In this paper, a dynamic stochastic small open economy model of sovereign debt and default is proposed to rationalize the claim that high turnover rates/length of tenure of policymakers and the degree of conflict within a country affects sovereign spreads, debt, and default rates.
267 citations
Posted Content•
TL;DR: In this article, the authors extend the model used in recent quantitative studies of sovereign default, allowing policymakers of different types to alternate in power, and 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.
Abstract: We extend the model used in recent quantitative studies of sovereign default, allowing policymakers of different types to 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.
7 citations
Posted Content•
01 Jan 2008
TL;DR: In this article, the authors analyzed the effects of introducing this type of contracts in a standard DSGE model with sovereign default risk and showed that the introduction of GDP-indexed sovereign debt contracts reduces the probability of default and makes the government willing to hold non-contingent assets and issue realindexed bonds at the same time.
Abstract: In recent years, some countries have issued sovereign bonds indexed to real variables such as GDP. Moreover, there has been discussions about this issue during the European crisis. This paper analyzes the effects of introducing this type of contracts in a standard DSGE model with sovereign default risk. We solved the model numerically calibrating it to the Argentine economy and show that the introduction of GDP-indexed sovereign debt contracts reduces the probability of default and makes the government willing to hold non-contingent assets and issue real-indexed bonds at the same time. The magnitude of the welfare effect that this type of instruments could generate is equivalent to an increase of approximately half a percentage point per year in certainty equivalent aggregate consumption.
2 citations