Welfare gains of bailouts in a sovereign default model

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dc.contributor.author Seoane, Hernán
dc.contributor.author Vukotic, María
dc.contributor.author Pancrazi, Roberto
dc.date.accessioned 2022-04-21T18:03:30Z
dc.date.available 2022-04-21T18:03:30Z
dc.date.issued 2020-02-01
dc.identifier.bibliographicCitation Pancrazi, R., Seoane, H. D., & Vukotić, M. (2020). Welfare gains of bailouts in a sovereign default model. Journal of Economic Dynamics and Control, 113, p. 103867.
dc.identifier.issn 0165-1889
dc.identifier.uri http://hdl.handle.net/10016/34598
dc.description.abstract We examine the welfare effects of bailouts in economies exposed to sovereign default risk. When a government of a small open economy requests a bailout from an international financial institution, it receives a non-defaultable loan of size G that comes with imposed debt limits. The government endogenously asks for the bailout during recessions and repays it when the economy recovers. Hence, the bailout acts as an imperfect state contingent asset that makes the economy better off. The bailout duration is endogenous and increases with its size. The bailout size creates non-trivial tradeoffs between receiving a larger amount of relatively cheap resources precisely in times of need on the one hand, and facing longer-lasting financial constraints and accumulated interest payments, on the other hand. We characterize and quantify these tradeoffs and document that welfare gains of bailouts are hump-shaped in the size of bailout loans
dc.description.sponsorship Hernán D. Seoane gratefully acknowledges financial support from the Fundación Ramón Areces and the Ministerio Economía y Competitividad (Spain), grants 2014-ECO2014-56676-C2-1-P , ECO2016-76818-C3-1-P , MDM 2014-0431 , and Comunidad de Madrid , MadEco-CM ( S2015/HUM-34 4 4 ).
dc.language.iso eng
dc.publisher Elsevier
dc.rights © Elsevier, 2020
dc.rights Atribución-NoComercial-SinDerivadas 3.0 España
dc.rights.uri http://creativecommons.org/licenses/by-nc-nd/3.0/es/
dc.subject.other Bailouts
dc.subject.other Default
dc.subject.other Sovereign risk
dc.title Welfare gains of bailouts in a sovereign default model
dc.type article
dc.subject.jel E44
dc.subject.jel F32
dc.subject.jel F34
dc.subject.eciencia Economía
dc.identifier.doi https://doi.org/10.1016/j.jedc.2020.103867
dc.rights.accessRights openAccess
dc.relation.projectID Gobierno de España. ECO2014-56676-C2-1-P
dc.relation.projectID Comunidad de Madrid. S2015/HUM-3444
dc.relation.projectID Gobierno de España. ECO2016-76818-C3-1-P
dc.relation.projectID Gobierno de España. MDM 2014-0431
dc.type.version acceptedVersion
dc.identifier.publicationfirstpage 1
dc.identifier.publicationlastpage 22
dc.identifier.publicationtitle JOURNAL OF ECONOMIC DYNAMICS & CONTROL
dc.identifier.publicationvolume 113 C
dc.identifier.uxxi AR/0000025694
dc.contributor.funder Ministerio de Economía y Competitividad (España)
dc.contributor.funder Comunidad de Madrid
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