Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/142720
Authors: 
Asonuma, Tamon
Trebesch, Christoph
Year of Publication: 
2015
Series/Report no.: 
Munich Discussion Paper 2015-18
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
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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