Debt Maturity without Commitment

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Authors registered in the RePEc Author Service: Dirk Niepelt

No 7093, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: I analyze how lack of commitment affects the maturity structure of sovereign debt. Governments balance benefits of default induced redistribution and costs due to income losses in the wake of a default. Their choice of short- versus long-term debt affects default and rollover decisions by subsequent policy makers. The equilibrium maturity structure is shaped by revenue losses on inframarginal units of debt that reflect the price impact of these decisions. The model predicts an interior maturity structure with positive gross positions and a shortening of the maturity structure when debt issuance is high, output low, or a cross default more likely. These predictions are consistent with empirical evidence.

Keywords: Debt; Default; Maturity structure; No commitment (search for similar items in EconPapers)
JEL-codes: E62 F34 H63 (search for similar items in EconPapers)
Date: 2008-12
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: Debt maturity without commitment (2014)
Working Paper: Debt Maturity without Commitment (2008)
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