Sovereign default and liquidity: The case for a world safe asset

• 成果类型: Article
• 署名作者: Le Grand, Francois; Ragot, Xavier
• 署名单位: emlyon business school; Swiss Federal Institutes of Technology Domain; ETH Zurich; Centre National de la Recherche Scientifique (CNRS); Institut d'Etudes Politiques Paris (Sciences Po)
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2021.103462
• 发表日期: 2021
• 关键词: Sovereign default; Safe asset; International liquidity

摘要

This paper presents a positive and normative study of a world financial market when sovereign countries can default on their debt. We construct a tractable model that enables us to study sovereign default in general equilibrium. The amount of safe assets is thus endogenous and determined by international risk-sharing. We characterize the equilibrium structure and we show that the market equilibrium can generate multiple equilibria. In addition, the market equilibrium is not constrained-efficient because countries do not fully internalize the value of their debt being used as liquidity. We prove that a world fund issuing a safe asset increases aggregate welfare. The fund's relationship with the IMF's Special Drawing Rights is discussed. (C) 2021 Elsevier B.V. All rights reserved.