By Kenneth S. Rogoff,

Journal of Policy Modeling Vol. 44, Issue 4 (Jul-Aug 2022): pp. 804-811.

Date published: Jul-Aug 2022

Abstract

With a number of emerging markets and particularly low-income countries experiencing debt distress after COVID, there is a lively policy debate. At the root of the debate is the fundamental question of what incentivizes a sovereign has to repay its debts; without answering this question, it is difficult to appraise policy options. The tension between developing a realistic model of sovereign debt and having an elegant self-contained general equilibrium macroeconomic model are familiar from corporate finance. The general equilibrium approach has important philosophical implications, but the more targeted corporate-finance-like approach is needed for most practical problems that policymakers face.