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Life after default? Private vs. official sovereign debt restructurings

Silvia Marchesi

No 398, Development Working Papers from Centro Studi Luca d'Agliano, University of Milano

Abstract: This paper studies the relationship between sovereign debt default and annual GDP growth taking into account the depth of a debt restructuring and distinguishing between commercial and official sovereign debt restructurings. Analyzing 73 default episodes in 117 countries over the period 1975-2013, I fi nd that defaults are correlated with contraction of short-term output growth. Most importantly, controlling for the severity of the default, I am able to detect a more lasting and negative link between default and growth. While higher private haircuts imply a negative stigma which is associated to lower growth over a longer period, higher amount of official restructuring may have some costs in the short-run, but are associated to an increase in growth in the long run. Adopting an alternative speci cation, in which the dependent variable is a country's credit rating, I fi nd very similar results for private haircuts and official restructurings. They are both associated to lower ratings up to seven years after the default. To the extent that credit ratings is a good proxy for borrowing costs, positive growth prospects for official defaulters seem not to be inuenced by a lower reputation in the credit markets.

Keywords: Haircuts; Output losses; Sovereign defaults (search for similar items in EconPapers)
JEL-codes: F34 G15 H63 (search for similar items in EconPapers)
Pages: 49
Date: 2016-08-26, Revised 2016-08-26
New Economics Papers: this item is included in nep-fdg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Life after default: Private vs. official sovereign debt restructurings (2019) Downloads
Working Paper: Life After Default: Private vs. Official Sovereign Debt Restructurings (2018) Downloads
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