Sovereign risk and real business cycles in a small open economy

Borradores de Economia
Número: 
226
Publicado: 
Clasificación JEL: 
E52, E58, E31
Palabras clave: 
Economy Macroeconomic

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This paper investigates the effect of sovereign risk on the stochastic rational expectations equilibrium of a real business cycle small open economy. The market is imperfect because the sovereign cannot commit to repay its outstanding debt and chooses to