Introduction to the Special Issue on Models of Debt and Debt Crises

Abstract

This special issue contains 10 articles that develop models of debt and debt crises. Some articles address fundamental questions about the theory of debt: What assumptions are needed to support positive levels of sovereign debt in models where governments can default? Is there evidence in the data to justify these assumptions? Are market outcomes in models of debt constrained optimal, or are interventions by an outside authority justified? Other articles address the question of why governments find it so difficult to reduce levels of sovereign debt. Yet other articles address the question of how the anticipation of actions taken after a crisis occurs—financial assistance by international agencies, bargaining over partial repayment of debt, and holdout investors who reject partial repayment bargains—can affect actions taken leading up to the crisis or can delay the resolution of a crisis.