Self-fulfilling crises with default and devaluation
type: Item
instance of: scholarly article
title: Self-fulfilling crises with default and devaluation
zbMATH Open document ID: 1276.91079
author: José-María Da-Rocha
author: Eduardo-Luis Giménez
author: Francisco-Xavier Lores
published in: Economic Theory
publication date: 2013-08-19T00:00:00Z
review text: The paper suggests a dynamic stochastic general equilibrium model (with discrete time) of defaults and devaluations in which self-fulfilling crises can arise. There are three types of agents in the economy: a continuum of identical consumers who invest (in domestic capital and in foreign securities), and pay taxes, a continuum of international bankers, and a government. The representative consumer's utility function is the expected infinite sum (on periods) of weighted sums of private and public consumptions. The individual banker's utility function is the expected infinite sum of weighted private consumptions. The governments object is to maximize the welfare of consumers. In every period the government chooses the level of government consumption and the real exchange rate, decides whether or not to default on its old debt, and sells debt. The bankers within each period choose to buy or not the debt. In each period, the value of an exogenous ``sunspot'' random factor is realized. The agents' decisions are defined via their value functions which are stochastic Bellman-type functions. These functions also define equilibrium of the economy. The equilibria existence and their properties at different assumptions are investigated. Theoretical results are demonstrated on character of the crisis in Argentina in 2001--2002.
reviewed by: Vladimir Gorbunov
Mathematics Subject Classification ID: 91B64
Mathematics Subject Classification ID: 91B51
Mathematics Subject Classification ID: 91B55
zbMATH DE Number: 6199391
zbMATH Keywords: economic crisis
zbMATH Keywords: government debt policy
zbMATH Keywords: default
zbMATH Keywords: devaluation
zbMATH Keywords: dynamic stochastic general equilibrium
MaRDI profile type: Publication
full work available at URL: s00199-012-0702-6
OpenAlex ID: W2076557336
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DOI: 10.1007/S00199-012-0702-6
description: scientific article; zbMATH DE number 6199391