Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/123249
Authors: 
Asonuma, Tamon
Trebesch, Christoph
Year of Publication: 
2015
Series/Report no.: 
CESifo Working Paper 5605
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’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.
Subjects: 
sovereign debt
default
debt restructuring
crisis resolution
JEL: 
F34
F41
H63
Document Type: 
Working Paper

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