Self-Fulfilling Debt Crises, Revisited

Mark Aguiar, Satyajit Chatterjee, Harold Cole, Zachary Stangebye

Research output: Contribution to journalArticlepeer-review

7 Scopus citations


Lack of commitment at the time of auction to repayment of imminently maturing debt can generate a run on debt and immediate default. We show that the same lack of commitment leads to other possible self-fulfilling crises, including issuance of more debt at depressed prices, or a “sudden stop” (forced austerity) in which debt issuance is sharply curtailed. Both outcomes stem from the government’s incentive to eliminate uncertainty about imminent payments at the time of auction by altering the level of debt issuance. These outcomes generate a large increase in spread volatility in both a 1-period and a multiperiod quantitative debt model.

Original languageEnglish (US)
Pages (from-to)1147-1183
Number of pages37
JournalJournal of Political Economy
Issue number5
StatePublished - May 2022

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics


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