Are there any economic models that capture country defaults?

External question — Economics Stack Exchange Author: KaiSqDist Original post: https://economics.stackexchange.com/questions/60440 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. I was reading up on the National Institute Global Econometric Model (NiGEM) methodology, which models each country with its own individual models. The framework is such that the global economy is closed, and outflows in one country is matched by inflows of another country or region. In one particular section, the model manual states: Country models are linked together through trade in goods and services, the influence of trade prices on domestic inflation, the impacts of exchange rates, and the patterns of asset holdings and associated income flows. The structure of the trade block ensures overall global consistency of trade volumes and trade values, which are linked via Armington matrices (Armington, 1969). As such, outflows from one country or region are matched by inflows into other countries and regions. Global assets and liabilities are also aligned, as well as their respective income flows, so that the model has no financial “black holes”. This also requires that the stock of government debt does not explode, and solvency is imposed on the government sector via endogenous fiscal rules. In light of the recent changes made by the US president that have large implications on the long-term debt of the US (such as the "big beautiful bill") and its sustainability, are there any economic models that are able to capture country defaults?

External answer — Economics Stack Exchange Author: 1muflon1 Original post: https://economics.stackexchange.com/a/60441 License: CC BY-SA 4.0 — https://creativecommons.org/licenses/by-sa/4.0/ Adaptation: HTML converted to plain text; contact email addresses removed. Are there any economic models that capture country defaults? There are models that estimate the probability of default. For example, Simons & Rolwes (2009) . If you are talking about exactly predicting date of default, that is impossible, because default is a stochastic event so prediction of default always have to be some probability distribution of default.