Internal debt crises and sovereign defaults
By: Cristina Arellano, Narayana R. Kocherlakota.
Contributors: Kocherlakota, Narayana Rao, 1963-; National Bureau of Economic Research.
Series: NBER working paper series -- working paper 13794; Working paper series (National Bureau of Economic Research : Online) -- working paper no. 13794.
Publisher: National Bureau of Economic Research
Published: 2008
Place of publication: Cambridge, MA
Language: eng
Format: Electronic resource
Description: "In this paper, we use data from developing countries to argue that sovereign defaults are often caused by fiscal pressures generated by large-scale domestic defaults.  We argue that these systemic domestic defaults are caused by shocks best interpreted as being non-fundamental.  We construct a model that is consistent with these observations.  The key ingredient of the model is that it is impossible to liquidate large amounts of entrepreneurial assets.  This restriction generates the possibility of a domestic coordinated default crisis, in which domestic borrowers find it optimal to default because all other borrowers are also defaulting.  We conclude that avoiding sovereign defaults requires better internal institutions, not better external ones"--National Bureau of Economic Research web site.
Notes: Title from PDF file as viewed on 6/13/2008.

Includes bibliographical references.

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