On the Role of Debt Maturity in a Model with Sovereign Risk and Financial Frictions

Abstract : We develop a model with financial frictions and sovereign default risk where the maturity of public debt is allowed to be larger than one period. When the debt portfolio has longer average maturities, public debt increases less in the event of a crisis, reducing the size of the subsequent fiscal consolidation through distorsionary taxes or public spending, with positive effects on welfare. In addition, we provide some results suggesting that optimized fiscal responses to a crisis depend on the average maturity of the debt portfolio. Abstract We develop a model with financial frictions and sovereign default risk where the maturity of public debt is allowed to be larger than one period. When the debt portfolio has longer average maturities, public debt increases less in the event of a crisis, reducing the size of the subsequent fiscal consolidation through distorsionary taxes or public spending, with positive effects on welfare. In addition, we provide some results suggesting that optimized fiscal responses to a crisis depend on the average maturity of the debt portfolio.
Document type :
Preprints, Working Papers, ...
Complete list of metadatas

Cited literature [10 references]  Display  Hide  Download

https://halshs.archives-ouvertes.fr/halshs-01467214
Contributor : Nelly Wirth <>
Submitted on : Tuesday, February 14, 2017 - 11:17:02 AM
Last modification on : Wednesday, April 3, 2019 - 1:04:25 AM
Long-term archiving on : Monday, May 15, 2017 - 1:40:15 PM

File

1707.pdf
Files produced by the author(s)

Identifiers

  • HAL Id : halshs-01467214, version 1

Citation

Stéphane Auray, Aurélien Eyquem. On the Role of Debt Maturity in a Model with Sovereign Risk and Financial Frictions. 2017. ⟨halshs-01467214⟩

Share

Metrics

Record views

235

Files downloads

442