Sovereign default and maturity choice

Juan Sanchez, Horacio Sapriza and Emircan Yurdagul

Journal of Monetary Economics, 2018, vol. 95, issue C, 72-85

Abstract: This study develops a novel model of endogenous sovereign debt maturity that rationalizes various stylized facts about debt maturity and the yield spread curve: first, sovereign debt duration and maturity generally exceed one year, and co-move positively with the business cycle. Second, sovereign yield spread curves are usually non-linear and upward-sloped, and may become non-monotonic and inverted during a period of high credit market stress, such as a default episode. Finally, output volatility, impatience, risk aversion, and especially sudden stops, are key determinants of maturity, both in our model and in the data.

Keywords: Crises; Default; Yield curve; Spreads; Bond duration; Finance; Sovereign maturity choice (search for similar items in EconPapers)
JEL-codes: F34 F41 G15 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (39)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:95:y:2018:i:c:p:72-85

DOI: 10.1016/j.jmoneco.2018.01.001

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