Austerity
Copyright policy )Austerity
Abstract We study the optimal debt and investment decisions of a sovereign with private information. The separating equilibrium is characterised by a cap on the current account. A sovereign repays debt amount due that exceeds default costs in order to signal creditworthiness and smooth consumption. Accepting funding conditional on investment/reforms relaxes borrowing constraints, even when investment does not create collateral, but it depresses current consumption. The model contains the signalling elements emphasised by creditors in the Greek austerity programmes and is consistent with the reduction in the loans issued by Greece and their interest rate following the 2015 election.
- University of Bern Switzerland
- National Bureau of Economic Research United States
- Goethe University Frankfurt Germany
- Centre for Economic Policy Research United Kingdom
- Johann Wolfgang Goethe-Universitaet Germany
Economics and Econometrics, 330, Austerity, growth, credit rationing, austerity; credit rationing; default; growth; incomplete information; investment; pooling equilibrium; separating equilibrium, pooling equilibrium, Kreditrisiko, incomplete information, F34, Unvollkommene Information, Wirtschaftswachstum, ddc:330, Öffentliche Schulden, Investition, Kreditrationierung, Gleichgewichtsmodell, austerity, credit rationing, default, incomplete information, investment, growth, pooling equilibrium, separating equilibrium, investment, austerity, 330 Economics, separating equilibrium, austerity,credit rationing,default,growth,incomplete information,investment,pooling equilibrium,separating equilibrium, Staatsbankrott, Haushaltskonsolidierung, H63, default, Theorie, jel: jel:H63, jel: jel:F34, ddc: ddc:330
Economics and Econometrics, 330, Austerity, growth, credit rationing, austerity; credit rationing; default; growth; incomplete information; investment; pooling equilibrium; separating equilibrium, pooling equilibrium, Kreditrisiko, incomplete information, F34, Unvollkommene Information, Wirtschaftswachstum, ddc:330, Öffentliche Schulden, Investition, Kreditrationierung, Gleichgewichtsmodell, austerity, credit rationing, default, incomplete information, investment, growth, pooling equilibrium, separating equilibrium, investment, austerity, 330 Economics, separating equilibrium, austerity,credit rationing,default,growth,incomplete information,investment,pooling equilibrium,separating equilibrium, Staatsbankrott, Haushaltskonsolidierung, H63, default, Theorie, jel: jel:H63, jel: jel:F34, ddc: ddc:330
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