The Twin Ds: Optimal Default and Devaluation

• 成果类型: Article
• 署名作者: Na, Seunghoon; Schmitt-Grohe, Stephanie; Uribe, Martin; Yue, Vivian
• 署名单位: Purdue University System; Purdue University; Columbia University; Center for Economic & Policy Research (CEPR); National Bureau of Economic Research; Emory University; Federal Reserve System - USA; Federal Reserve Bank - Atlanta
• 刊物名称: AMERICAN ECONOMIC REVIEW
• ISSN/ISSBN: 0002-8282
• DOI: 10.1257/aer.20141558
• 发表日期: 2018
• 页码: 1773-1819
• 关键词: monetary-policy; debt; MODEL; crises

摘要

A salient characteristic of sovereign defaults is that they are typically accompanied by large devaluations. This paper presents new evidence of this empirical regularity known as the Twin Ds and proposes a model that rationalizes it as an optimal policy outcome. The model combines limited enforcement of debt contracts and downward nominal wage rigidity. Under optimal policy, default is shown to occur during contractions. The role of default is to free up resources for domestic absorption, and the role of exchange rate devaluation is to lower the real value of wages, thereby reducing involuntary unemployment.