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Sovereign debt with heterogeneous creditors

Harris Dellas () and Dirk Niepelt ()

Journal of International Economics, 2016, vol. 99, issue S1, S16-S26

Abstract: We develop a sovereign debt model with heterogeneous creditors (private and official) where the probability of default depends on both the level and the composition of debt. Higher exposure to official lenders improves incentives to repay due to more severe sanctions but it is also costly because it lowers the value of the sovereign's default option. The model can account for the co-existence of private and official lending, the time variation in their shares in total debt as well as the low rates charged on both. It also produces intertwined default and debt-composition choices.

Keywords: Sovereign debt; Heterogeneous creditors; Debt composition; Default; Pari passu; Debt overhang (search for similar items in EconPapers)
JEL-codes: F34 H63 (search for similar items in EconPapers)
Date: 2016
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Chapter: Sovereign Debt with Heterogeneous Creditors (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:99:y:2016:i:s1:p:s16-s26

DOI: 10.1016/j.jinteco.2015.12.002

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