Sovereign Debt Restructurings: Preemptive or Post-Default

Tamon Asonuma and Christoph Trebesch

Journal of the European Economic Association, 2016, vol. 14, issue 1, 175-214

Abstract: Sovereign debt restructurings can be implemented preemptively—prior to a payment default. We code a comprehensive new data set and find that preemptive restructurings (i) are frequent (38% of all deals 1978–2010), (ii) have lower haircuts, (iii) are quicker to negotiate, and (iv) see lower output losses. To rationalize these stylized facts, we build a quantitative sovereign debt model that incorporates preemptive and post-default renegotiations. The model improves the fit with the data and explains the sovereign’s optimal choice: preemptive restructurings occur when default risk is high ex ante, while defaults occur after unexpected bad shocks. Empirical evidence supports these predictions.

JEL-codes: F34 F41 H63 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (129)

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Related works:
Journal Article: SOVEREIGN DEBT RESTRUCTURINGS: PREEMPTIVE OR POST-DEFAULT (2016)
Working Paper: Sovereign Debt Restructurings: Preemptive or Post-Default (2016)
Working Paper: Sovereign Debt Restructurings: Preemptive or Post-Default (2015)
Working Paper: Sovereign Debt Restructurings: Preemptive or Post-Default (2015)
Working Paper: Sovereign Debt Restructurings: Preemptive or Post-Default (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:oup:jeurec:v:14:y:2016:i:1:p:175-214.

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