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Sovereign Debt

Leonardo Martinez, Francisco Roch, Francisco Roldán () and Jeromin Zettelmeyer
Additional contact information
Leonardo Martinez: International Monetary Fund
Francisco Roch: International Monetary Fund
Jeromin Zettelmeyer: International Monetary Fund

No 167, Working Papers from Red Nacional de Investigadores en Economía (RedNIE)

Abstract: This paper surveys the literature on sovereign debt from the perspective of understanding how overeign debt differs from privately issue debt, and why sovereign debt is deemed safe in some countries but risky in others. The answers relate to the unique power of the sovereign. One the one hand, a sovereign has the power to tax, making debt relatively safe; on the other, it also has control over its territory and most of its assets, making debt enforcement difficult. The paper discusses debt contracts and the sovereign debt market, sovereign debt restructurings, and the empirical and theoretical literatures on the costs and causes of defaults. It describes the adverse impact of sovereign default risk on the issuing countries and what explains this impact. The survey concludes with a discussion of policy options to reduce sovereign risk, including fiscal frameworks that act as commitment devices, state-contingent debt, and independent and credible monetary policy.

Keywords: Sovereign Debt; Safe Debt; Debt Default; Debt Restructuring; Costs of Sovereign Default; Political Defaults; Fiscal Frameworks; State Contingent Debt; Original Sin (search for similar items in EconPapers)
JEL-codes: F34 F36 G01 G11 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2022-08
New Economics Papers: this item is included in nep-opm
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https://rednie.eco.unc.edu.ar/files/DT/167.pdf (application/pdf)

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