Dynamics of sovereign debt: credit risk and sustainability analysis
This seminar will be in hybrid format. It will be livestreamed but not recorded.
We present an empirically grounded quantitative framework for modelling sovereign credit risk and evaluating the sustainability of sovereign debt. We study the impact of fiscal and public investment policies on the sovereign’s borrowing cost and credit risk in presence of stochastic output shocks and credit-sensitive funding from investors, with a focus on the dynamics of liquidity flows and the sustainability of sovereign debt. Our model successfully replicates a range of empirical observations on sovereign credit risk and sovereign defaults. In particular, it reproduces Argentina’s 2001 default and Greece’s 2011 debt restructuring events and leads to realistic dynamics for debt, spreads and credit ratings conditional on output.

The framework is useful for debt sustainability analysis and may be used to estimate the impact of fiscal policy on debt and output.
Date: 15 May 2025, 14:00
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Seminar Room G and online via Zoom
Speaker: Karolina Bassa (Mathematics Institute, University of Oxford)
Organising department: Institute for New Economic Thinking
Organisers: INET Oxford (University of Oxford), Fiona Burbage (INET Oxford, University of Oxford)
Organiser contact email address: events@inet.ox.ac.uk
Hosts: Prof Eric Beinhocker (INET Oxford Executive Director), INET Oxford (University of Oxford)
Part of: INET Oxford Seminars
Booking required?: Required
Booking url: https://www.inet.ox.ac.uk/events/inet-oxford-seminar-trinity-term-25-w3
Booking email: events@inet.ox.ac.uk
Cost: Free
Audience: Public
Editor: Fiona Burbage