The Economics of Sovereign Debt and Default

Mark Aguiar and Manuel Amador's The Economics of Sovereign Debt and Default offers a unified and tractable theoretical framework that explains the key economics behind sovereign debt markets, sheds light on the frictions and inefficiencies that prevent their smooth functioning, and proposes sensible approaches to sovereign debt management. It contrasts the outcome of a constrained efficient allocation with the competitive equilibrium outcome and is an ideal resource for researchers and graduate students interested in this important topic.

Format: Hardback
Length: 200 pages
Publication date: 21 December 2021
Publisher: Princeton University Press

Fiscal crises and sovereign default pose persistent threats to the stability and growth of economies worldwide. In response, Mark Aguiar and Manuel Amador offer a comprehensive and accessible theoretical framework that sheds light on the key economics underlying sovereign debt markets, highlighting the frictions and inefficiencies that hinder their smooth operation. This insightful book delves into the unique friction of sovereign debt, namely the absence of robust legal enforcement, and explores additional factors such as the deadweight costs of default, vulnerability to runs, incentives to "dilute" existing creditors, and the distortion of investment and growth caused by sovereign debts.

Utilizing a tractable framework, the authors isolate the impact of each additional friction on the equilibrium outcome and illustrate it through state-of-the-art computational modeling. The novel approach presented here contrasts the outcome of a constrained efficient allocation, aimed at maximizing the joint surplus of creditors and the government, with the competitive equilibrium outcome. This analysis enables a clear examination of the extent to which equilibrium prices effectively guide governments' debt and default decisions and the factors that lead to divergences from the efficient outcome.

The Economics of Sovereign Debt and Default serves as an invaluable resource for researchers and graduate students seeking to delve deeper into this critical topic. By providing an integrated approach, this book offers a comprehensive understanding of the economics behind sovereign debt markets and provides practical insights into sovereign debt management.

Weight: 474g
Dimension: 163 x 243 x 23 (mm)
ISBN-13: 9780691176819