Pregled bibliografske jedinice broj: 805300
Endogenous Default- Why and when do Countries with Fixed Exchange Rate Regimes Decide to Default?
Endogenous Default- Why and when do Countries with Fixed Exchange Rate Regimes Decide to Default? // Challenges of Europe: Growth, competitiveness and inequality / Pavić, Ivan ; Muštra, Vinko (ur.).
Split: Ekonomski fakultet Sveučilišta u Splitu, 2015. str. 115-136 (predavanje, međunarodna recenzija, cjeloviti rad (in extenso), znanstveni)
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Naslov
Endogenous Default- Why and when do Countries with Fixed Exchange Rate Regimes Decide to Default?
Autori
Malenica, Ante ; Nadoveza, Ozana ; Fučkar, Karla ; Bukvić, Vedran
Vrsta, podvrsta i kategorija rada
Radovi u zbornicima skupova, cjeloviti rad (in extenso), znanstveni
Izvornik
Challenges of Europe: Growth, competitiveness and inequality
/ Pavić, Ivan ; Muštra, Vinko - Split : Ekonomski fakultet Sveučilišta u Splitu, 2015, 115-136
Skup
11th International Conference Challenges of Europe: Growth, competitiveness and inequality
Mjesto i datum
Hvar, Hrvatska, 27.05.2015. - 29.05.2015
Vrsta sudjelovanja
Predavanje
Vrsta recenzije
Međunarodna recenzija
Ključne riječi
endogenous default ; policy credibility ; (re)election probability ; fixed exchange rate
Sažetak
In this paper, the authors try to explain why and when it is rational for the government of a country with an overvalued exchange rate to refuse gradual depreciation and to default. The model is based on the following assumptions. Policy makers seek to maximize (re)election probabilities by evaluating the utility functions of households and firms. In addition, to win the votes of households the government must also gain their trust and remain credible. The credibility is based on the government’s ability to keep election promises which include: a fixed exchange rate, refraining from default, provision of public goods and maintaining reasonable tax rates. In a situation of budget deficit, government borrows from the international market. A growing need for financing increases the country’s risk and raises the lending interest rates, which in turn reduces both the gross domestic product and the income of households. The model suggests that policy makers decide to default when the probability of re-election is higher in case of default than in case of maintaining credibility. The model sets the basis for the above mentioned dynamics, which is in line with the stylized facts, and allows for comparative statics exercises.
Izvorni jezik
Engleski
Znanstvena područja
Ekonomija
