Gabriel Desgranges

Expectations Coordination On A Sunspot Equilibrium: An Eductive Approach

We analyze expectations coordination on a stationary sunspot equilibrium (SSE) using an eductive approach in which agents forecast the forecasts of others. This approach is grounded in some common-knowledge assumptions. We show that two institutional contexts may be envisaged; we also distinguish between stationary and nonstationary beliefs. We show that the conditions for eductive stability depend mainly on whether stationarity of beliefs is imposed. We also prove the existence of eductively stable SSEs by means of the PoincarA©â€“Hopf theorem and show that eductively stable SSEs exist in a neighborhood of some indeterminate steady states. (This abstract was borrowed from another version of this item.)

Optimal Maturity Structure of Sovereign Debt in Situation of Near Default

We study the relationship between default and the maturity structure of the debt portfolio of a Sovereign, under uncertainty. The Sovereign faces a trade-off between a future costly default and a high current fiscal effort. This results into a debt crisis in case a large initial issuance of long term debt is followed by a sequence of negative macro shocks. Prior uncertainty about future fundamentals is then a source of default through its effect on long term interest rates and the optimal debt issuance. Intuitively, the Sovereign chooses a portfolio implying a risk of default because this risk generates a correlation between the future value of long term debt and future fundamentals. Long term debt serves as a hedging instrument against the risk on fundamentals. When expected fundamentals are high, the Sovereign issues a large amount of long term debt, the expected default probability increases, and so does the long term interest rate.