Institutional Affiliation: Texas A&M University
|Nominally Sovereign Debt, Risk Shifting, and Reputation|
with : w2259
This paper analyzes a reputational equilibrium in a model in which nominally denominated sovereign debt serves to shift risk associated with the unpredictability of tax revenues from the sovereign to its lenders. The analysis answers the following set of related questions: Why would a sovereign refrain from inflating when faced with servicing a large quantity of nominal debt? If a sovereign does not plan to use inflation to repudiate its nominal debts, why would it want to issue nominal debt in the first place? What are the distinguishing features of those sovereigns who are willing and able to issue nominal debts?
Published: Journal of Economics and Business, Vol. 45, Nos. 3 & 4, pp. 341-352 (August , October 1993) citation courtesy of
|Sovereign Debt as a Contingent Claim: Excusable Default, Repudiation, and Reputation|
with : w1673
History suggests the following stylized facts about default on sovereign debt:(1) Defaults are associated with identifiably bad states of the world. (2) Defaults are usually partial, rather than complete.(3) Sovereign states usually are able to borrow again soon after a default. Motivated by these facts, this paper analyses a reputational equilibrium in a model that interprets sovereign debts as contingent claims that both finance investments and facilitate risk shifting. Loans are a useful device to facilitate risk shifting because they permit the prepayment of indemnities. Nevertheless, because the power to abrogate commitments without having to answer to a higher enforcement authority is an essential aspect of sovereignty, a decision by a sovereign to validate lender expectations about...
Published: The American Economic Review, Vol. 78, No. 5, pp. 1088-1097, (December 1988). citation courtesy of
|Seigniorage, Inflation, and Reputation|
with : w1505
This paper derives a reputational equilibrum for inflation in a model in which the government obtains valuable seigniorage by issuing fiat money in echange for real resources. One insightful result is that , with contemporaneous perceptionof actual government behavior and immediate adjustment of real cash balences to new information , the Friedman elasticity solution for maximal seigniorage is the reputatoinal equilibrium. More generally , the analysis shows that the objective of maximal seigniorage produces an equilibrium inflation rate equal either to a generalization of the Friedman elasticity solution or to the rate at which the government discounts future seigniorage adjusted for the growth rate, whichever is larger. Thus, the model formalizes the conjecture that epizodes of inflatio...
Published: Grossman, Herschel I. and John B. Van Huyck. "Seigniorage, Inflation, and Reputation," Journal of Monetary Economics, Vol. 18, No. 1, July 1986, pp. 21-31. citation courtesy of