Resolving Sovereign Debt Crises: The Role of Political Risk
Christoph Trebesch ()
No 7161, CESifo Working Paper Series from CESifo Group Munich
Sovereign defaults are bad news for investors and debtor countries, in particular if a default becomes messy and protracted. Why are some debt crises resolved quickly, in a matter of months, while others take many years to settle? This paper studies the duration of sovereign debt crises based on a new dataset and case study archive on debt renegotiations between governments and foreign banks and bondholders. Using Cox proportional hazard models, I find that domestic political instability (‘political risk’) is a significant predictor of negotiation delays, after controlling for macroeconomic conditions. Government crises, resignations, and street protests are particularly disruptive for a quick settlement process. Overall, the evidence suggests that debtor countries often lack the political ability to resolve a debt crisis. Governments in turmoil are unlikely to exit a default quickly.
Keywords: sovereign default; crisis resolution; political economy (search for similar items in EconPapers)
JEL-codes: F34 F51 H63 (search for similar items in EconPapers)
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Working Paper: Resolving sovereign debt crises: The role of political risk (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7161
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