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Sovereign Debt Restructurings: Preemptive or Post-Default

By Tamon Asonuma and Christoph Trebesch

Abstract

Sovereign debt restructurings can be implemented preemptively - prior to a payment default. We code a comprehensive new dataset 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\u2019s optimal choice: preemptive restructurings occur when default risk is high ex-ante, while defaults occur after unexpected bad shocks. Empirical evidence supports these predictions

Topics: F34, F41, H63, ddc:330, sovereign debt, default, debt restructuring, crisis resolution
Publisher: Munich: Center for Economic Studies and Ifo Institute (CESifo)
Year: 2015
OAI identifier: oai:econstor.eu:10419/123249
Provided by: EconStor

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