Events at CERGE-EI

Thursday, 4 November, 2021 | 13:00 | Macro Research Seminar | ONLINE

Prof. Christopher Phelan, Ph.D. (University of Minnesota) "Reputation and Partial Default"

Prof. Christopher Phelan, Ph.D.

University of Minnesota, United States

Meeting ID: 937 7811 6716

Passcode: 902191


Abstract: Th‘is paper presents a continuous-time reputation model of sovereign debt allowing for both varying levels of partial default and full default. In it, a government can be a nonstrategic commitment type, or a strategic opportunistic type, and a government’s reputation is its equilibrium Bayesian posterior of being the commitment type. Our equilibrium has that for bond levels reachable by both types without defaulting, bigger partial defaults (or bigger haircuts for bond holders) imply higher interest rates for subsequent bond issuances, as in the data.