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Article Dans Une Revue Journal of International Economics Année : 2021

Sovereign default and liquidity : The case for a world safe asset

Résumé

This paper presents a positive and normative study of a world financial market when sovereign countries can default on their debt. We construct a tractable model that enables us to study sovereign default in general equilibrium. The amount of safe assets is thus endogenous and determined by international risk-sharing. We characterize the equilibrium structure and we show that the market equilibrium can generate multiple equilibria. In addition, the market equilibrium is not constrained-efficient because countries do not fully internalize the value of their debt being used as liquidity. We prove that a world fund issuing a safe asset increases aggregate welfare. The fund's relationship with the IMF's Special Drawing Rights is discussed.

Dates et versions

hal-03188242 , version 1 (01-04-2021)

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Citer

François Le Grand, Xavier Ragot. Sovereign default and liquidity : The case for a world safe asset. Journal of International Economics, 2021, 131, 28 p. ⟨10.1016/j.jinteco.2021.103462⟩. ⟨hal-03188242⟩
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