Replication data for: The Twin Ds: Optimal Default and Devaluation

Principal Investigator(s):  View help for Principal Investigator(s) Seunghoon Na; Stephanie Schmitt-Grohé; Martín Uribe; Vivian Yue

Version:  View help for Version V1

Name File Type Size Last Modified
LICENSE.txt text/plain 14.6 KB 10/11/2019 10:58:PM
pdf.m text/plain 1 KB 10/11/2019 10:58:PM
read_me.txt text/plain 1.6 KB 10/11/2019 10:58:PM
simu_opt.m text/plain 4.1 KB 10/11/2019 10:58:PM
simu_peg.m text/plain 4.1 KB 10/11/2019 10:58:PM
smooth_lad.m text/plain 756 bytes 10/11/2019 10:58:PM
tpm.mat application/octet-stream 88.1 KB 10/11/2019 10:58:PM
typical_default_episode_opt.m text/x-fortran 4 KB 10/11/2019 10:58:PM
typical_default_episode_opt_peg.m text/plain 4.9 KB 10/11/2019 10:58:PM
vfi_opt.m text/plain 4.2 KB 10/11/2019 10:58:PM

Project Citation: 

Na, Seunghoon, Schmitt-Grohé, Stephanie, Uribe, Martín, and Yue, Vivian. Replication data for: The Twin Ds: Optimal Default and Devaluation. Nashville, TN: American Economic Association [publisher], 2018. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-10-12. https://doi.org/10.3886/E113023V1

Project Description

Summary:  View help for Summary A salient characteristic of sovereign defaults is that they are typically accompanied by large devaluations. This paper presents new evidence of this empirical regularity known as the Twin Ds and proposes a model that rationalizes it as an optimal policy outcome. The model combines limited enforcement of debt contracts and downward nominal wage rigidity. Under optimal policy, default is shown to occur during contractions. The role of default is to free up resources for domestic absorption, and the role of exchange rate devaluation is to lower the real value of wages, thereby reducing involuntary unemployment.

Scope of Project

JEL Classification:  View help for JEL Classification
      E24 Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
      E32 Business Fluctuations; Cycles
      E52 Monetary Policy
      F31 Foreign Exchange
      F34 International Lending and Debt Problems
      F41 Open Economy Macroeconomics
Data Type(s):  View help for Data Type(s) program source code


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V1 [2019-10-12]

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