Logo
Munich Personal RePEc Archive

The Root Cause of Sovereign Default

Harashima, Taiji (2021): The Root Cause of Sovereign Default.

[img]
Preview
PDF
MPRA_paper_110010.pdf

Download (942kB) | Preview

Abstract

Sovereign defaults have occurred more frequently in emerging countries and accompany significant currency depreciation and high inflation. The standard model of sovereign default cannot necessarily explain these facts sufficiently. In this paper, I examine the root cause of sovereign default on the basis of a model of inflation that is built on a micro-foundation of government behavior and conclude that the root cause of sovereign default is an insufficiently independent central bank. Without a sufficiently independent central bank, the government inevitably borrows money excessively, and as a result, inflation and currency depreciation accelerate. This situation will frustrate and anger the population, and the government may then declare a sovereign default in an attempt to place the blame on foreign lenders, at least temporarily.

Atom RSS 1.0 RSS 2.0

Contact us: mpra@ub.uni-muenchen.de

This repository has been built using EPrints software.

MPRA is a RePEc service hosted by Logo of the University Library LMU Munich.