RT Generic
T1 An ergodic theory of sovereign default
A1 Pierri, Damian Rene
A1 Seoane, Hernán
A2 Universidad Carlos III de Madrid. Departamento de Economía, 
AB We present the conditions under which the dynamics of a sovereign default model of private external debt are stationary, ergodic and globally stable. As our results are constructive, the model can be used for the accurate computation of global long run stylized facts. We show that default can be used to derive a stable unconditional distribution (i.e., a stable stochastic steady state), one for each possible event, which in turn allows us to characterize globally positive probability paths. We show that the stable and the ergodic distribution are actually the same object. We found that there are 3 type of paths: non-sustainable and sustainable; among this last category trajectories can be either stable or unstable. In the absence of default, non-sustainable and unstable paths generate explosive trajectories for debt. By deriving the notion of stable state space, we show that the government can use the default of private external debt as a stabilization policy.
SN 2340-5031
YR 2022
FD 2022-12-05
LK https://hdl.handle.net/10016/36164
UL https://hdl.handle.net/10016/36164
LA eng
NO We thank the excellent research assistance of Sebastián Manzi and Jano Acosta. Damian Pierri ackowledges financial support from Ministerio de Asuntos Económicos y Transformación Digital through grant Number ECO2016-76818-C3-1-P, and PDI2021-122931NB-I00. Hernán Seoane gratefully acknowledges financial support by MICIN/ AEI/10.13039/501100011033, grants CEX2021-001181-M, ECO2016-76818-C3-1-P, and Comunidad de Madrid, grants EPUC3M11 (V PRICIT).
DS e-Archivo
RD 27 jul. 2024