Default risk, sectoral reallocation, and persistent recessions

• 成果类型: Article; Proceedings Paper
• 署名作者: Arellano, Cristina; Bai, Yan; Mihalache, Gabriel
• 署名单位: Federal Reserve System - USA; Federal Reserve Bank - Minneapolis; University of Minnesota System; University of Minnesota Twin Cities; University of Rochester; State University of New York (SUNY) System; Stony Brook University; National Bureau of Economic Research
• 刊物名称: JOURNAL OF INTERNATIONAL ECONOMICS
• ISSN/ISSBN: 0022-1996
• DOI: 10.1016/j.jinteco.2018.01.004
• 发表日期: 2018
• 页码: 182-199
• 关键词: European debt crisis; Traded and nontraded production; Real exchange rate; capital accumulation; Sovereign default with production economy

摘要

Sovereign debt crises are associated with large and persistent declines in economic activity, disproportionately so for nontradable sectors. This paper documents this pattern using Spanish data and builds a two-sector, dynamic quantitative model of sovereign default with capital accumulation. Recessions are very persistent in the model and more pronounced for nontraded sectors because of default risk. An adverse domestic shock increases the likelihood of default, limits capital inflows, and thus restricts the ability of the economy to exploit investment opportunities. The economy responds by reducing investment and reallocating capital toward the traded sector to support debt service payments. The real exchange rate depreciates, a reflection of the scarcity of traded goods. We find that these mechanisms are quantitatively important for rationalizing the experience of Spain during the recent debt crisis. (C) 2018 The Authors. Published by Elsevier B.V.