Sovereign Debt Ratchets and Welfare Destruction

• 成果类型: Article
• 署名作者: Demarzo, Peter; He, Zhiguo; Tourre, Fabrice
• 署名单位: Stanford University; National Bureau of Economic Research; University of Chicago; City University of New York (CUNY) System; Baruch College (CUNY)
• 刊物名称: JOURNAL OF POLITICAL ECONOMY
• ISSN/ISSBN: 0022-3808
• DOI: 10.1086/724571
• 发表日期: 2023
• 页码: 2825-2892
• 关键词: interest-rates; default; equilibrium; maturity; MODEL

摘要

We study an impatient, risk-neutral government that cannot commit to a particular debt path, financed by competitive lenders. In equilibrium, debt adjusts slowly toward a debt-to-income target, exacerbating booms and busts. Strikingly, gains from trade dissipate when trading is continuous, leaving the government no better off than in financial autarky, owing to a sovereign debt ratchet effect. Moreover, citizens who are more patient than their government are strictly harmed. We characterize equilibrium debt dynamics, ergodics, and comparative statics when income follows a geometric Brownian motion and analyze devices that allow the sovereign to recapture gains from trade.