Maturity, Indebtedness, and Default Risk

67 Pages Posted: 16 Aug 2011

See all articles by Satyajit Chatterjee

Satyajit Chatterjee

Federal Reserve Bank of Philadelphia

Burcu Eyigungor

Federal Reserve Bank of Philadelphia

Multiple version iconThere are 3 versions of this paper

Date Written: August 1, 2011

Abstract

In this paper, the authors advance the theory and computation of Eaton-Gersovitz style models of sovereign debt by incorporating long-term debt and proving the existence of an equilibrium price function with the property that the interest rate on debt is increasing in the amount borrowed and implementing a novel method of computing the equilibrium accurately. Using Argentina as a test case, they show that incorporating long-term debt allows the model to match the average external debt-to-output ratio, average spread on external debt, the standard deviation of spreads and simultaneously improve upon the model's ability to account for Argentina's other cyclical facts.

Suggested Citation

Chatterjee, Satyajit and Eyigungor, Burcu, Maturity, Indebtedness, and Default Risk (August 1, 2011). FRB of Philadelphia Working Paper No. 11-33. Available at SSRN: https://ssrn.com/abstract=1910101 or http://dx.doi.org/10.2139/ssrn.1910101

Satyajit Chatterjee (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

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Burcu Eyigungor

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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