Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/121392
Authors: 
Guo, Yanling
Year of Publication: 
2015
Citation: 
[Journal:] Economics: The Open-Access, Open-Assessment E-Journal [Volume:] 9 [Issue:] 2015-33 [Pages:] 1-52
Abstract: 
In this paper, the author considers sovereign debt in the form of one-period government bonds with default risk, which can be purchased by and traded among domestic and foreign investors. She shows that the "good equilibrium" is the only stable equilibrium under some quite general assumptions, while the "bad equilibrium" is an unstable one - a possible explanation for why the former is observed in practice. Given the "good equilibrium", the author further shows that the domestic debt share also determines the default risk: a higher domestic debt share means a lower default risk, ceteris paribus, which leads to a lower risk premium; while a lower domestic debt share means a higher default risk and a higher risk premium. Finally, she discusses some alternative interpretations of the domestic debt share.
Subjects: 
public debt
sovereign debt
sovereign default
domestic debt
external debt
fiscal policy
government bond
government borrowing
JEL: 
F34
H63
H74
H62
H6
H87
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/3.0/
Document Type: 
Article

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