Arbeitspapier

Sovereign default risk premia, fiscal limits and fiscal policy

We develop a closed economy model to study the interactions among sovereign risk premia, fiscal limits, and fiscal policy. The stochastic fiscal limits, which measure the ability and willingness of the government to service its debt, arise endogenously from a dynamic Laffer curve. The distribution of fiscal limits is country-specific, depending on the size of the government, the degree of countercyclical policy responses, economic diversity, and political uncertainty, among other characteristics. The model rationalizes different sovereign ratings across developed countries. A nonlinear relationship between sovereign risk premia and the level of government debt, which emerges in equilibrium, is consistent with the empirical evidence that once risk premia begin to rise, they do so rapidly. Movements in default risk premia for long-term bonds precede those for shortterm bonds, providing early warnings of increasing probabilities of sovereign defaults.

Sprache
Englisch

Erschienen in
Series: Bank of Canada Working Paper ; No. 2011-10

Klassifikation
Wirtschaft
Fiscal Policy
Fiscal Policies and Behavior of Economic Agents: General
National Budget, Deficit, and Debt: General
Thema
Fiscal policy
International topics
Öffentliche Schulden
Zahlungsunfähigkeit
Risikoprämie
Finanzpolitik
Laffer-Kurve
Industriestaaten

Ereignis
Geistige Schöpfung
(wer)
Bi, Huixin
Ereignis
Veröffentlichung
(wer)
Bank of Canada
(wo)
Ottawa
(wann)
2011

DOI
doi:10.34989/swp-2011-10
Handle
Letzte Aktualisierung
20.09.2024, 08:22 MESZ

Datenpartner

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Objekttyp

  • Arbeitspapier

Beteiligte

  • Bi, Huixin
  • Bank of Canada

Entstanden

  • 2011

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