Public Debt Sustainability and Defaults

Arbeitspapier

We offer a new methodology for the assessment of public debt sustainability in a stochastic economy when sovereign default taken into account. The default threshold differs from the no-Ponzi condition and depends on the post-default debt recovery rule. We distinguish sustainability and unsustainability conditions, related to alternative scenarios on the future sequence of shocks. We highlight the role of the debt recovery ratio on the whole dynamics of public debt. When a sovereign default occurs, the sustainability of the post-default debt is ensured when the haircut is sufficiently large. Lastly we provide an explanation of serial defaults.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CESifo Working Paper ; No. 6554

Classification and Topics

• Classification: Wirtschaft ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General ; Macroeconomic Aspects of International Trade and Finance: General ; National Debt; Debt Management; Sovereign Debt
• Subject: public debt ; sovereign default ; recovery rate ; debt sustainability

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Guillard, Michel ; Kempf, Hubert
• Event: Veröffentlichung
• (who): Center for Economic Studies and ifo Institute (CESifo)
• (where): Munich
• (when): 2017

Further information

• Handle: http://hdl.handle.net/10419/167540
• Last update: 10.03.2025, 11:44 AM CET