Rare Disasters, Financial Development, and Sovereign Debt

Sergio Rebelo, Neng Wang*, Jinqiang Yang

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

8 Scopus citations

Abstract

We propose a model of sovereign debt in which countries vary in their level of financial 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.

Original languageEnglish (US)
Pages (from-to)2719-2764
Number of pages46
JournalJournal of Finance
Volume77
Issue number5
DOIs
StatePublished - Oct 2022

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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