Default risk premia on government bonds in a quantitative macroeconomic model

dc.contributor.authorJuessen, Falko
dc.contributor.authorLinnemann, Ludger
dc.contributor.authorSchabert, Andreas
dc.date.accessioned2009-12-07T13:34:27Z
dc.date.available2009-12-07T13:34:27Z
dc.date.issued2009-12-07T13:34:27Z
dc.description.abstractThis paper examines the pricing of public debt in a quantitative macroeconomic model with government default risk. Default may occur due to a fiscal policy that does not preclude a Ponzi game. When a build-up of public debt makes this outcome inevitable, households stop lending such that the government has to default. Interest rates on government bonds reflect expectations of this event. There may exist multiple bond prices compatible with a rational expectations equilibrium. We analyze the conditions under which expected default risk premia can quantitatively rationalize sizeable spreads on public bonds. Sovereign default risk premia turn out to emerge at either very high debt to output ratios, or if the variance of productivity shocks is large.de
dc.identifier.urihttp://hdl.handle.net/2003/26541
dc.identifier.urihttp://dx.doi.org/10.17877/DE290R-8145
dc.language.isoen
dc.relation.ispartofseriesDiscussion Paper / SFB 823 ; 33/2009
dc.subjectasset pricingen
dc.subjectfiscal policyen
dc.subjectgovernment debten
dc.subjectsovereign defaulten
dc.subject.ddc310
dc.subject.ddc330
dc.subject.ddc620
dc.titleDefault risk premia on government bonds in a quantitative macroeconomic modelen
dc.typeText
dc.type.publicationtypereport
dcterms.accessRightsopen access

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