01927cas a2200253 a 4500 AALejournalIMF007312 230101c9999 xx r poo 0 0eng d 5.00 USD 9781462302222 1018-5941 BD-DhAAL BD-DhAAL Yue, Zhanwei. A General Equilibrium Model of Sovereign Default and Business Cycles / Zhanwei Yue, Enrique Mendoza. Washington, D.C. : International Monetary Fund, 2011. 1 online resource (55 pages) IMF Working Papers <strong>Off-Campus Access:</strong> No User ID or Password Required <strong>On-Campus Access:</strong> No User ID or Password Required Electronic access restricted to authorized BRAC University faculty, staff and students Emerging markets business cycle models treat default risk as part of an exogenous interest rate on working capital, while sovereign default models treat income fluctuations as an exogenous endowment process with ad-noc default costs. We propose instead a general equilibrium model of both sovereign default and business cycles. In the model, some imported inputs require working capital financing; default on public and private obligations occurs simultaneously. The model explains several features of cyclical dynamics around default triggers an efficiency loss as these inputs are replaced by imperfect substitutes; and default on public and private obligations occurs simultaneously. The model explains several features of cyclical dynamics around deraults, countercyclical spreads, high debt ratios, and key business cycle moments. Mode of access: Internet Mendoza, Enrique. IMF Working Papers; Working Paper ; No. 2011/166 Full text available on IMF http://elibrary.imf.org/view/journals/001/2011/166/001.2011.issue-166-en.xml IMF e-Library