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On Wars, Sanctions and Sovereign Default

Author

Listed:
  • Javier Bianchi

    (Federal Reserve Bank of Minneapolis)

  • Cesar Sosa-Padilla

    (University of Notre Dame)

Abstract
This paper explores the role of restrictions on the use of international reserves as economic sanctions. We develop a simple model of the strategic game between a sanctioning (creditor) country and a sanctioned (debtor) country. We show how the sanctioning country should impose restrictions optimally, internalizing the geopolitical benefits and the financial costs of a potential default from the sanctioned country.

Suggested Citation

  • Javier Bianchi & Cesar Sosa-Padilla, 2022. "On Wars, Sanctions and Sovereign Default," Working Papers 151, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:151
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    File URL: https://rednie.eco.unc.edu.ar/files/DT/151.pdf
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    References listed on IDEAS

    as
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    6. Javad Nosratabadi, 2023. "The effect of trade sanctions on employment through total factor productivity," International Economics and Economic Policy, Springer, vol. 20(1), pages 163-187, February.
    7. Guido Lorenzoni & Iván Werning, 2023. "A Minimalist Model for the Ruble during the Russian Invasion of Ukraine," American Economic Review: Insights, American Economic Association, vol. 5(3), pages 347-356, September.
    8. Cristina Arellano, 2008. "Default Risk and Income Fluctuations in Emerging Economies," American Economic Review, American Economic Association, vol. 98(3), pages 690-712, June.
    9. Javier Bianchi & César Sosa-Padilla, 2024. "Reserve Accumulation, Macroeconomic Stabilization, and Sovereign Risk," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 91(4), pages 2053-2103.
    10. Philip R. Lane & Gian Maria Milesi-Ferretti, 2018. "The External Wealth of Nations Revisited: International Financial Integration in the Aftermath of the Global Financial Crisis," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 66(1), pages 189-222, March.
    11. Javier Bianchi & Juan Carlos Hatchondo & Leonardo Martinez, 2018. "International Reserves and Rollover Risk," American Economic Review, American Economic Association, vol. 108(9), pages 2629-2670, September.
    12. Oleg Itskhoki & Dmitry Mukhin, 2022. "Sanctions and the Exchange Rate," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 57(3), pages 148-151, May.
    13. Juan M. Morelli & Pablo Ottonello & Diego J. Perez, 2022. "Global Banks and Systemic Debt Crises," Econometrica, Econometric Society, vol. 90(2), pages 749-798, March.
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    Cited by:

    1. Oleg Itskhoki & Dmitry Mukhin, 2022. "Sanctions and the Exchange Rate," Intereconomics: Review of European Economic Policy, Springer;ZBW - Leibniz Information Centre for Economics;Centre for European Policy Studies (CEPS), vol. 57(3), pages 148-151, May.
    2. Farah-Yacoub,Juan P. & Graf Von Luckner,Clemens Mathis Henrik & Ramalho,Rita & Reinhart,Carmen M., 2022. "The Social Costs of Sovereign Default," Policy Research Working Paper Series 10157, The World Bank.
    3. Fabio Ghironi & Daisoon Kim & Galip Kemal Ozhan, 2024. "International Economic Sanctions and Third-Country Effects," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(2), pages 611-652, June.
    4. Corsetti, G. & Maeng, S. H., 2023. "The Theory of Reserve Accumulation, Revisited," Janeway Institute Working Papers 2319, Faculty of Economics, University of Cambridge.
    5. Bondarenko, Yevheniia & Lewis, Vivien & Rottner, Matthias & Schüler, Yves, 2023. "Geopolitical Risk Perceptions," CEPR Discussion Papers 18123, C.E.P.R. Discussion Papers.
    6. Corsetti, G. & Maeng, S. H., 2023. "The Theory of Reserve Accumulation, Revisited," Cambridge Working Papers in Economics 2370, Faculty of Economics, University of Cambridge.
    7. Ryan Chahrour & Rosen Valchev, 2024. "The Dollar in an Era of International Retrenchment," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 72(3), pages 1042-1080, September.
    8. Becko, John Sturm, 2024. "A theory of economic sanctions as terms-of-trade manipulation," Journal of International Economics, Elsevier, vol. 150(C).

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    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions

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