Replication data for: Slow Moving Debt Crises

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Project Citation:

Lorenzoni, Guido, and Werning, Iván. Replication data for: Slow Moving Debt Crises. Nashville, TN: American Economic Association [publisher], 2019. Ann Arbor, MI: Inter-university Consortium for Political and Social Research [distributor], 2019-12-06. https://doi.org/10.3886/E116165V1

Project Description

Summary: We study slow moving debt crises: self-fulfilling equilibria in which high interest rates, due to the fear of a future default, lead to a gradual but faster accumulation of debt, ultimately validating investors' fear. We show that slow moving crises arise in a variety of settings, both when fiscal policy follows a given rule and when it is chosen by an optimizing government. A key assumption, in all these settings, is that the borrowing government cannot commit to issue a fixed amount of bonds in a given period. We discuss how multiplicity is avoided for low debt levels, for sufficiently responsive fiscal policy rules, and for long enough debt maturities. When the equilibrium is unique, debt dynamics are characterized by a tipping point, below which debt falls and stabilizes and above which debt and default rates grow.

Scope of Project

Subject Terms: Sovereign Debt Crises; Fiscal Policy

JEL Classification:
      E43 Interest Rates: Determination, Term Structure, and Effects
      E62 Fiscal Policy
      H50 National Government Expenditures and Related Policies: General
      H63 National Debt; Debt Management; Sovereign Debt

Data Type(s): program source code

Collection Notes: Codes to replicate simulations in Slow Moving Debt Crises

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Published Versions

V1 [2019-12-06]

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DDI 2.5

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