ON THE ROLE OF DEBT MATURITY IN A MODEL WITH SOVEREIGN RISK AND FINANCIAL FRICTIONS

Stéphane Auray; Aurélien Eyquem

doi:10.1017/S136510051700061X

ON THE ROLE OF DEBT MATURITY IN A MODEL WITH SOVEREIGN RISK AND FINANCIAL FRICTIONS

Stéphane Auray
, Aurélien Eyquem

Université du Littoral Côte d'Opale
Université Lyon 2

Research output: Contribution to journal › Article › peer-review

2 Citations (Scopus)

Abstract

We develop a model with financial frictions and sovereign default risk wherein the maturity of public debt is allowed to be larger than one period. When the debt portfolio has longer average maturities, public debt increases less in the event of a crisis, reducing the size of the subsequent fiscal consolidation through distorsionary taxes or public spending, with positive effects on welfare. In addition, we provide some results suggesting that optimized fiscal responses to a crisis depend on the average maturity of the debt portfolio.

Original language	English
Pages (from-to)	2114-2131
Number of pages	18
Journal	Macroeconomic Dynamics
Volume	23
Issue number	5
DOIs	https://doi.org/10.1017/S136510051700061X
Publication status	Published - 1 Jul 2019
Externally published	Yes

Keywords

Financial Crisis
Fiscal Policy
Sovereign Default Risk

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10.1017/S136510051700061X

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title = "ON THE ROLE OF DEBT MATURITY IN A MODEL WITH SOVEREIGN RISK AND FINANCIAL FRICTIONS",

abstract = "We develop a model with financial frictions and sovereign default risk wherein the maturity of public debt is allowed to be larger than one period. When the debt portfolio has longer average maturities, public debt increases less in the event of a crisis, reducing the size of the subsequent fiscal consolidation through distorsionary taxes or public spending, with positive effects on welfare. In addition, we provide some results suggesting that optimized fiscal responses to a crisis depend on the average maturity of the debt portfolio.",

keywords = "Financial Crisis, Fiscal Policy, Sovereign Default Risk",

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N2 - We develop a model with financial frictions and sovereign default risk wherein the maturity of public debt is allowed to be larger than one period. When the debt portfolio has longer average maturities, public debt increases less in the event of a crisis, reducing the size of the subsequent fiscal consolidation through distorsionary taxes or public spending, with positive effects on welfare. In addition, we provide some results suggesting that optimized fiscal responses to a crisis depend on the average maturity of the debt portfolio.

AB - We develop a model with financial frictions and sovereign default risk wherein the maturity of public debt is allowed to be larger than one period. When the debt portfolio has longer average maturities, public debt increases less in the event of a crisis, reducing the size of the subsequent fiscal consolidation through distorsionary taxes or public spending, with positive effects on welfare. In addition, we provide some results suggesting that optimized fiscal responses to a crisis depend on the average maturity of the debt portfolio.

KW - Financial Crisis

KW - Fiscal Policy

KW - Sovereign Default Risk

U2 - 10.1017/S136510051700061X

DO - 10.1017/S136510051700061X

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ON THE ROLE OF DEBT MATURITY IN A MODEL WITH SOVEREIGN RISK AND FINANCIAL FRICTIONS

Abstract

Keywords

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