| This dissertation comprises two essays that are linked by their focus on agents that exhibit uncertainty-aversion and who interact in dynamic environments characterized by the lack of commitment.;In chapter 1, "Sovereign Default Risk and Uncertainty Premia", I develop a general equilibrium model of sovereign debt with endogenous default. Foreign lenders fear that the probability model which dictates the evolution of the endowment of the borrower is misspecified. To compensate for the risk and uncertainty-adjusted probability of default, they demand higher returns on their bond holdings. In contrast with the existing literature on sovereign default, I am able to match the average bond spreads observed in the data together with the standard empirical regularities of emerging economies.;In chapter 2, "On Credible Monetary Policies with Model Uncertainty", I study the design of optimal time-consistent monetary policy in an economy where the government trusts his own model, while a representative household uses a set of alternative distorted probability distributions governing the evolution of the exogenous state of the economy. In such environments, management of households' expectations becomes an active channel of optimal policymaking per se; a feature that our paternalistic government seeks to exploit. I adapt recursive methods as well as computational algorithms to fully characterize the equilibrium outcomes for a class of policy games between the government and a representative household who distrusts the model used by the government. |
