Nominal Sovereign Debt

International Economic Review, Forthcoming

27 Pages Posted: 29 May 2015 Last revised: 7 Oct 2016

See all articles by Toan Phan

Toan Phan

Federal Reserve Banks - Federal Reserve Bank of Richmond

Multiple version iconThere are 2 versions of this paper

Date Written: Sep 30, 2016


I show that reputation alone can sustain nominal sovereign debt, which is subject to both the risks of default and opportunistic devaluations. Nominal debt combined with a countercyclical exchange rate policy allows more hedging against shocks than real savings if markets are incomplete. Thus, the loss of either repayment or monetary reputation severely affects the government’s ability to smooth consumption. The model offers a simple explanation for the Bulow and Rogoff critique, while simultaneously helps explain the issuance of nominal sovereign bonds by emerging economies. The model also helps explain why many governments borrow and save at the same time.

Keywords: sovereign debt; inflation; sustainable policies

JEL Classification: F34; F4; H63

Suggested Citation

Phan, Toan, Nominal Sovereign Debt (Sep 30, 2016). International Economic Review, Forthcoming. Available at SSRN: or

Toan Phan (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Richmond ( email )

P.O. Box 27622
Richmond, VA 23261
United States

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