Philippon, Thomas, Roldán, Francisco, (2016), “On the Optimal Speed of Sovereign Deleveraging with Precautionary Savings”, International Monetary Fund, Νοέμβριος
We study the optimal path of reduction of government debt in an economy when the economy is depressed and there is significant sovereign default risk. We emphasize the endogenous response of savers to sovereign risk. We obtain two main results. First, this new macro-economic channel changes the tradeoff between the recessionary impact of fiscal consolidation and the risk of a future sovereign debt crisis. Second, we find that savers and borrowers almost always disagree about the optimal path of sovereign deleveraging.
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