Sovereign Defaults at Home and Abroad

Aitor Erce, Mattia Osvaldo Picarelli and Enrico Mallucci

No 18739, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We systematically compare sovereign defaults on domestic and external debt markets. Domestic defaults involve smaller debt quantities and are resolved faster; nonetheless, both types of default deliver similar creditor losses. Domestic and external defaults often involve only a fraction of outstanding debt and are routinely resolved using maturity extensions or coupon reductions, rather than through face value reductions. Governments default at home and abroad selectively, with different types of default occurring in different macro-financial and political environments. Our findings challenge key assumptions used in the theoretical literature and provide empirical guidance for the improved calibration of sovereign default models.

Keywords: Public debt; Sovereign default; Domestic markets; Stylized facts; Theory; International markets (search for similar items in EconPapers)
JEL-codes: E62 E65 F34 G01 H12 H63 K00 K41 (search for similar items in EconPapers)
Date: 2024-01
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Working Paper: Sovereign defaults at home and abroad (2024)
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