Question: Consider the SOE model with a limited commitment friction and the possibility the nation could default in the current or future periods. Suppose that, if

Consider the SOE model with a limited commitment friction and the

Consider the SOE model with a limited commitment friction and the possibility the nation could default in the current or future periods. Suppose that, if the nation does not default, then the limited commitment constraint does not bind. Could default still be preferred in the current period to not defaulting? Explain, with the aid of a diagram

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