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Research Details

Rare Disasters, Financial Development, and Sovereign Debt, Journal of Finance

Abstract

We propose a model of sovereign debt in which countries vary in their level of finan- cial development, defined as the extent to which they can issue debt denominated in domestic currency in international capital markets. We show that low levels of financial development generate the “debt intolerance” phenomenon that plagues emerging markets: it reduces overall debt capacity, increases credit spreads, and limits the country’s ability to smooth consumption.

Type

Article

Author(s)

Sergio Rebelo, Neng Wang, Jinqiang Yang

Date Published

2021

Citations

Rebelo, Sergio, Neng Wang, and Jinqiang Yang. 2021. Rare Disasters, Financial Development, and Sovereign Debt. Journal of Finance.

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