Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/264332 
Authors: 
Year of Publication: 
2022
Series/Report no.: 
Working Paper No. WP 2022-17
Publisher: 
Federal Reserve Bank of Chicago, Chicago, IL
Abstract: 
This paper proposes a quantitative theory of the interaction between private and public debt in an open economy. Excessive private debt increases the frequency of financial crises. During such crises the government provides fiscal bailouts financed with risky public debt. This response may cause a sovereign debt crisis, which is characterized by a higher probability of a sovereign default. The model is quantitatively consistent with the evolution of private debt, public debt, and sovereign spreads in Spain from 1999 to 2015, and provides an estimate of the degree of overborrowing, its effect on the spreads, and the optimal macroprudential policy.
Subjects: 
Bailouts
credit frictions
financial crises
macroprudential policy
sovereign default
JEL: 
E32
E44
F41
G01
G28
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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