Sovereign Debt Restructurings

Maximiliano Dvorkin, Juan Sanchez, Horacio Sapriza and Emircan Yurdagul

No 2018-13, Working Papers from Federal Reserve Bank of St. Louis

Abstract: Sovereign debt crises involve debt restructurings characterized by a mix of face-value haircuts and maturity extensions. The prevalence of maturity extensions has been hard to reconcile with economic theory. We develop a model of endogenous debt restructuring that captures key facts of sovereign debt and restructuring episodes. While debt dilution pushes for negative maturity extensions, three factors are important in overcoming the effects of dilution and generating maturity extensions upon restructurings: income recovery after default, credit exclusion after restructuring, and regulatory costs of book-value haircuts. We employ dynamic discrete choice methods that allow for smoother decision rules, rendering the problem tractable.

Keywords: Crises; Default; Sovereign Debt; Restructuring; Rescheduling; Country Risk; Maturity; Dynamic Discrete Choice (search for similar items in EconPapers)
JEL-codes: F34 F41 G15 (search for similar items in EconPapers)
Pages: 77 pages
Date: 2018-06-25
New Economics Papers: this item is included in nep-dcm, nep-dge and nep-opm
Note: Publisher DOI: https://doi.org/10.1257/mac.20190220
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

Published in American Economic Journal-Macroeconomics

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Journal Article: Sovereign Debt Restructurings (2021)
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DOI: 10.20955/wp.2018.013

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