The sources of sovereign risk: a calibration based on Levy stochastic processes

• 成果类型: Article
• 署名作者: Carre, Sylvain; Cohen, Daniel; Villemot, Sebastien
• 署名单位: Swiss Finance Institute (SFI); Swiss Federal Institutes of Technology Domain; Ecole Polytechnique Federale de Lausanne; Paris School of Economics
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2019.02.003
• 发表日期: 2019
• 页码: 31-43
• 关键词: sovereign debt; default

摘要

Governments choose to issue risky or riskless debt depending on the nature of the stochastic process of output. We use Brownian motion and Poisson shocks a modeling method in the literature on corporate default known as Levy processes to approximate a decomposition of the output process into a smooth and a jump component. Using an Eaton and Gersovitz (1981) model of debt repudiation, we show that the Brownian part explains the counter-cyclical behavior of the current account, and the Poisson part explains the risk of default thus enabling our model to account for key stylized facts regarding sovereign risk. (C) 2019 Elsevier B.V. All rights reserved.