Default

The untold story of how FDR did the unthinkable to save the American economy.

Emerging countries experience real exchange rate depreciations around defaults. In this paper, we examine this observed pattern empirically and through the lens of a dynamic stochastic general equilibrium model. The theoretical model explicitly incorporates bond issuances in local and foreign currencies, and endogenous determination of real exchange rate and default risk. Our quantitative analysis replicates the link between real exchange rate depreciation and default probability around defaults and moments of the real exchange rate that match the data. Prior to default, interactions of real exchange rate depreciation, originated from a sequence of low tradable goods shocks with the sovereign’s large share of foreign currency debt, trigger defaults. In post-default periods, the resulting output costs and loss of market access due to default lead to further real exchange rate depreciation.

Sovereign debt restructurings are associated with declines in GDP, investment, bank credit, and capital flows. The transmission channels and associated output and banking sector costs depend on whether the restructuring takes place preemptively, without missing payments to creditors, or whether it takes place after a default has occurred. Post-default restructurings are associated with larger declines in bank credit, an increase in lending interest rates, and a higher likelihood of triggering a banking crisis than pre-emptive restructurings. Our local projection estimates show large declines in GDP, investment, and credit amplified by severe sudden stops and transmitted through a “capital inflow-credit channel”.

Chapters in this volume describe morphology using four different frameworks that have an architectural property in common: they all use defaults as a way of discovering and presenting systematicity in the least systematic component of grammar. These frameworks - Construction Morphology, Network Morphology, Paradigm-function Morphology, and Word Grammar - display key differences in how they constrain the use and scope of defaults, and in the morphological phenomena that they address. An introductory chapter presents an overview of defaults in linguistics and specifically in morphology. In subsequent chapters, key proponents of the four frameworks seek to answer questions about the role of defaults in the lexicon, including: Does a defaults-based account of language have implications for the architecture of the grammar, particularly the proposal that morphology is an autonomous component? How does a default differ from the canonical or prototypical in morphology? Do defaults have a psychological basis? And how do defaults help us understand language as a sign-based system that is flawed, where the one to one association of form and meaning breaks down in the morphology?

In this volume, John Horty brings to bear his work in logic to present a framework that allows for answers to key questions about reasons and reasoning, namely: What are reasons, and how do they support actions or conclusions?