Illiquidity in sovereign debt markets

• 成果类型: Article
• 署名作者: Passadore, Juan; Xu, Yu
• 署名单位: University of Delaware
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2022.103618
• 发表日期: 2022
• 关键词: credit risk; liquidity risk; Sovereign debt; open economies

摘要

We study sovereign debt and default policies when credit and liquidity risk are jointly determined. To account for both types of risks, we focus on an economy with incomplete markets, limited commitment, and search frictions in the secondary market for sovereign bonds. We quantify the effect of liquidity on sovereign spreads and welfare by performing quantitative exercises when our model is calibrated to match key features of the Argentinean default in 2001. From a positive point of view, we find (a) that a substantial portion of sovereign spreads is due to a liquidity premium, and (b) the liquidity premium helps to resolve the credit spread puzzle by generating high average spreads while maintaining a low default frequency. From a normative point of view, we find that reductions in secondary market frictions improve welfare.(c) 2022 Elsevier B.V. All rights reserved.