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Borrowing Costs after Sovereign Debt Relief

Valentin Lang, David Mihalyi and Andrea Presbitero

American Economic Journal: Economic Policy, 2023, vol. 15, issue 2, 331-58

Abstract: Can debt moratoria help countries weather negative shocks? We exploit the Debt Service Suspension Initiative (DSSI) to study the bond market effects of deferring official debt repayments. Using daily data on sovereign bond spreads and synthetic control methods, we show that countries eligible for official debt relief experience a larger decline in borrowing costs compared to similar, ineligible countries. This decline is stronger for countries that receive a larger relief, suggesting that the effect works through liquidity provision. By contrast, the results do not support the concern that official debt relief could generate stigma on financial markets.

JEL-codes: F34 G12 H63 O16 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1257/pol.20210166

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