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Sovereign Risk, Financial Fragility and Debt Maturity

Author

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  • Dallal Bendjellal

    (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)

Abstract
This paper studies the transmission of a sovereign debt crisis in which a shift in default risk generates a recession and gives rise to a doom loop between sovereign distress and bank fragility with important amplification effects. The model is used to investigate the macroeconomic and welfare effects of altering debt maturity during the crisis. Short-term maturities alleviate the bankers' losses on long-term bonds and moderate the recession at the cost of higher levels of debt in the future. In contrast, long-term maturities are more effective to reduce the households' welfare losses as they lower default risk and distortionary taxes.

Suggested Citation

  • Dallal Bendjellal, 2022. "Sovereign Risk, Financial Fragility and Debt Maturity," Working Papers hal-03792522, HAL.
    • Handle: RePEc:hal:wpaper:hal-03792522
    Note: View the original document on HAL open archive server: https://amu.hal.science/hal-03792522
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    References listed on IDEAS

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    Keywords

    Debt Crisis; Sovereign Default Risk; Financial Fragility; Maturity Dynamics;
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