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Debt Buybacks, Debt Reduction, and Debt Rescheduling under Asymmetric Information

Jorge Fernández-Ruiz

Journal of Money, Credit and Banking, 2000, vol. 32, issue 1, 13-27

Abstract: In the early nineties there was a significant recovery of many debt-ridden economies after the shift in debt policy implicit in the so-called Brady Plan. Yet, the use of scarce resources from debtor countries to buy back part of their debts remains a controversial feature of this Plan. We use a multiperiod model of debt overhang to show that, under asymmetric information, this transfer of resources emerges naturally as part of the shift from a strategy of debt rescheduling, to one of debt reduction.

Date: 2000
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Handle: RePEc:mcb:jmoncb:v:32:y:2000:i:1:p:13-27