RT Journal Article
T1 Is inflation default? The role of information in debt crises
A1 Galli, Carlo
A1 Bassetto, Marco
AB We study the information sensitivity of government debt denominatedin domestic versus foreign currency: the former is subject to inflationrisk and the latter to default. Default only affects sophisticatedbond traders, whereas inflation concerns a larger and less informedgroup. Within a two-period Bayesian trading game, differentialinformation manifests itself in the secondary market, and we displayconditions under which debt prices are more resilient to bad newseven in the primary market, where only sophisticated players operate.Our results can explain debt prices across countries followingthe 2008 financial crisis, and also provide a theory of “original sin.”
PB American Economic Association
SN 0002-8282
YR 2019
FD 2019-10-01
LK https://hdl.handle.net/10016/35333
UL https://hdl.handle.net/10016/35333
LA eng
NO Financial support from the ADEMU (H2020, No. 649396) project andfrom the ESRC Centre for Macroeconomics is gratefully acknowledged.
DS e-Archivo
RD 1 sept. 2024