SOVEREIGN DEBT RESTRUCTURINGS: PREEMPTIVE OR POST-DEFAULT
Sovereign debt restructurings can be implemented preemptively—prior to a payment default. We code a comprehensive new data set and find that preemptive restructurings (i) are frequent (38% of all deals 1978-2010), (ii) have lower haircuts, (iii) are quicker to negotiate, and (iv) see lower output lo...
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| Published in: | Journal of the European Economic Association Vol. 14; no. 1; pp. 175 - 214 |
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| Main Authors: | , |
| Format: | Journal Article |
| Language: | English |
| Published: |
Oxford
Wiley Blackwell for the European Economic Association (EEA)
01-02-2016
Oxford University Press |
| Subjects: | |
| Online Access: | Get full text |
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| Summary: | Sovereign debt restructurings can be implemented preemptively—prior to a payment default. We code a comprehensive new data set and find that preemptive restructurings (i) are frequent (38% of all deals 1978-2010), (ii) have lower haircuts, (iii) are quicker to negotiate, and (iv) see lower output losses. To rationalize these stylized facts, we build a quantitative sovereign debt model that incorporates preemptive and post-default renegotiations. The model improves the fit with the data and explains the sovereign's optimal choice: preemptive restructurings occur when default risk is high ex ante, while defaults occur after unexpected bad shocks. Empirical evidence supports these predictions. |
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| Bibliography: | . Acknowledgments: We would like to thank the editor, two anonymous referees, and Ali Abbas, Nikita Aggarwal, Manuel Amador, Charles Blitzer, Ran Bi, Marcos Chamon, Satyajit Chatterjee, Sergio Chodos, Aitor Erce, Burcu Eyigungor, Douglas Gale, Simon Gilchrist, Francois Gourio, Christoph Groe Steffen, Olivier Jeanne, Jun Il Kim, Laurence Kotlikoff, Luc Laeven, Alberto Martin, Leonardo Martinez, Maurice Obstfeld, Ugo Panizza, Michael Papaioannou, Romain Ranciere, Francisco Roch, Damiano Sandri, Julian Schumacher, Cesar Sosa‐Padilla, Cedric Tille, Adrien Verdelhan, Mark L. J. Wright, and Vivian Yue for very helpful comments and suggestions. Maximilian Rupss provided excellent research assistance. All remaining errors are our own. The views expressed herein are those of the authors and should not be attributed to the IMF, its Executive Board, or its management. The editor in charge of this paper was Farbrizio Zilibotti |
| ISSN: | 1542-4766 1542-4774 |
| DOI: | 10.1111/jeea.12156 |