Title of paper: Fiscal Discipline and Defaults

Manuscript number: RED 13-49R4

Authors: Pau S. Pujolas, Ph.D.; José L. Torres, Ph.D.
Corresponding Author: Dr. Gonzalo F. de-Cordoba gdecordoba@uma.es

Name of RED editor in charge: Gianluca Violante

readme.txt file: This file

Software and operating system used: All programs where written in GNU-octave.
The oprating system was 32-bit Linux-Ubuntu 16.04 LTS 

The expected computation time is always below a minute running
with an Intel® Celeron(R) CPU G1820T @ 2.40GHz × 2 installed in a
HP-Pro One 400.

The paper runs several programs to perform a number of experiments. Each
experiment is inside a folder with the experiment title. In each folder
there are a number of files needed to perform the experiment.

All programs follow the notation of the paper. Therefore theta1 in a program
corresponds to the appropriate Greek letter in the paper. There is only one exception to this rule, which is parameter pi_c=1, that it is not in the text, but does nothing in the program as long as you keep pi_c=1. It is there to check for the effect of a quality drop in the provision of public goods in case of default, but it's value
never changes from 1 in the programs.

Folder Name: Calibration
Main script file: GreeceCalibration.m and GermanCalibration.m. These file
calibrate the Greek and German economies to the targets given in the file

Dependencies are:
1) secant.m: File with the Newton-Raphson algorithm
2) NewCalCpo.m: A function file with the conditions of the calibration
3) SMss.m: Function file with the steady state conditions. Is a check to verify tha you obtain the desired output
4) SMdyn.m: Function file with the dynamic conditions, to check whether the calibrated point is a steady state
5) PlotChoksLevels.m: Script file that plots the path for all variables.

Folder Name: Experiment1
Main scipt file:
1) Exp1.m: This file compues the first experiment, where Greece decides to
default in crisis times.

Dependencies:
1) secant.m: Function file with Newton-raphson algorithm
2) UtNd.m: Function file computing the utility and G/Y level of no debt. This level is used to know at what G/Y level there is no debt.
3) GreeceModelFOC.m: Function file with the set of first order condictions of
the model
4) UtDefDyn.m: Function file with the dynamic paths of an economy that
defaults.
5) UtPayBackDyn.m: Function file with the dynamics of an economy that pays back its debt as it comes to maturity.

Folder Name: Experiment2
Main scipt file:
1) Exp2.m: This file compues the second experiment, where Germany decides to
roll over its debt when Germany faces German interest rates.

Dependencies:
1) secant.m: Function file with Newton-raphson algorithm
2) UtNd.m: Function file computing the utility and G/Y level of no debt. This level is used to know at what G/Y level there is no debt.
3) GreeceModelFOC.m: Function file with the set of first order condictions of
the model
4) UtDefDyn.m: Function file with the dynamic paths of an economy that
defaults.
5) UtPayBackDyn.m: Function file with the dynamics of an economy that pays back its debt as it comes to maturity.
6) UtRollOver.m: Function file that computes the optimal path and utility
of an economy that rolls over a given amount of debt.

Folder Name: Experiment3
Main scipt file:
1) Exp3.m: This file compues the third experiment, where Greece decides to
default instead of pay back at the crisis interest rates faced by Greece


Dependencies:
1) secant.m: Function file with Newton-raphson algorithm
2) UtNd.m: Function file computing the utility and G/Y level of no debt. This level is used to know at what G/Y level there is no debt.
3) GreeceModelFOC.m: Function file with the set of first order condictions of
the model
4) UtDefDyn.m: Function file with the dynamic paths of an economy that
defaults.
5) UtPayBackDyn.m: Function file with the dynamics of an economy that pays back its debt as it comes to maturity.
6) UtRollOver.m: Function file that computes the optimal path and utility
of an economy that rolls over a given amount of debt.

Folder Name: Experiment4
Main scipt file:
1) Exp4.m: This file compues the fourth experiment, where Greece is told that
she has to adopt a German Rule. There are two parts and only one has to be
executed.

If you want to run Greece under normal times, uncomment the following part:

%Greece is Greece in normal times
%{
tauc = tauc*ones(size(1:T));
taul = taul*ones(size(1:T));
tauk = tauk*ones(size(1:T));
taus = taus*ones(size(1:T));
taupi = taupi*ones(size(1:T));
theta1 = theta1*ones(size(1:T));
theta2 = theta2*ones(size(1:T));
theta3 = theta3*ones(size(1:T));
theta4 = theta4*ones(size(1:T));
ratGY =  ratGY*ones(size(1:T)); 
%}

while you left uncommented

%Greece is Germany in normal times

tauc = [tauc*ones(size(1:T0))   0.124*ones(size(T0+1:T))];
taul = [taul*ones(size(1:T0))   0.381*ones(size(T0+1:T))];
tauk = [tauk*ones(size(1:T0))   0.181*ones(size(T0+1:T))];
taus = [taus*ones(size(1:T0))   0.339*ones(size(T0+1:T))];
taupi = [taupi*ones(size(1:T0)) 0.387*ones(size(T0+1:T))];
theta1 = [theta1*ones(size(1:T0)) 0.4024*ones(size(T0+1:T))];
theta2 = [theta2*ones(size(1:T0)) 0.0432*ones(size(T0+1:T))];
theta3 = [theta3*ones(size(1:T0)) 0.1712*ones(size(T0+1:T))];
theta4 = [theta4*ones(size(1:T0)) 0.3832*ones(size(T0+1:T))];
ratGY =  [ratGY*ones(size(1:T0)) ratGY*(ones(size(T0+1:T)))]; 

Dependencies:
1) secant.m: Function file with the Newton-Raphson algorithm
2) ShokSS.m: Function file to compute the steady state
3) NormalDyn.m: Function file with the normal dynamics of an economy that suffers a fiscal shock
4) UtDefDynExp4to6.m: Function file to compute the default dynamics in an economy that suffers a fiscal shock
5) UtPayBackDynExp4to6.m: Function file to compute the pay-back dynamics in an economy that suffers a fiscal shock


Folder Name: Experiment5
Main scipt file:
1) Exp5.m: This file compues the experiment five, where Germany faces the
crisis Greek interest rates. Then it is shown that Germany would have
preferred to pay back rather than to default.


Dependencies:
1) secant.m: Function file with Newton-raphson algorithm
2) UtNd.m: Function file computing the utility and G/Y level of no debt. This level is used to know at what G/Y level there is no debt.
3) GreeceModelFOC.m: Function file with the set of first order condictions of
the model
4) UtDefDyn.m: Function file with the dynamic paths of an economy that
defaults.
5) UtPayBackDyn.m: Function file with the dynamics of an economy that pays back its debt as it comes to maturity.
6) UtRollOver.m: Function file that computes the optimal path and utility
of an economy that rolls over a given amount of debt.


Folder Name: Experiment6
Main scipt file:
1) Exp6.m: This file compues the experiment five, where Greece, under the Greek rule is forced to adopt the German debt level.

Dependencies:
1) secant.m: Function file with the Newton-Raphson algorithm
2) ShockSS.m: Function file that computes the steady state
3) UtSeqB.m: Function file that computes the optimal paths for an economy when you impose a path for B
4) UtDefDynExp4to6.m: Dynamics of default in a program that accepts fiscal shocks of various types.
5) UtPayBackDynExp4to6.m: Dynamics of pay back in a program that accepts fiscal shocks of various types.


Folder Name: Experiment7
Main scipt file:
1) Exp7.m: This file compues the experiment five, where Greece, under the Greek rule is forced to adopt the German debt level with the German fiscal code.

Dependencies:
1) secant.m: Function file with the Newton-Raphson algorithm
2) ShockSS.m: Function file that computes the steady state
3) UtRollOver.m: Function file that computes the optimal paths for an economy when you impose roll over
4) UtDefDynExp4to6.m: Dynamics of default in a program that accepts fiscal shocks of various types.
5) UtPayBackDynExp4to6.m: Dynamics of pay back in a program that accepts fiscal shocks of various types.