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Sovereign Debt Restructurings: Preemptive or Post-Default

Tamon Asonuma () and Christoph Trebesch ()

No 10950, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Sovereign debt restructurings can be implemented preemptively - prior to a payment default. We code a comprehensive new dataset 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.

Keywords: crisis resolution; debt restructuring; default; sovereign debt (search for similar items in EconPapers)
JEL-codes: F34 F41 H63 (search for similar items in EconPapers)
Date: 2015-11
New Economics Papers: this item is included in nep-cba and nep-opm
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Related works:
Journal Article: SOVEREIGN DEBT RESTRUCTURINGS: PREEMPTIVE OR POST-DEFAULT (2016) Downloads
Journal Article: Sovereign Debt Restructurings: Preemptive or Post-Default (2016) Downloads
Working Paper: Sovereign Debt Restructurings: Preemptive or Post-Default (2016)
Working Paper: Sovereign Debt Restructurings: Preemptive or Post-Default (2015) Downloads
Working Paper: Sovereign Debt Restructurings: Preemptive or Post-Default (2015) Downloads
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