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Delay and Haircuts in Sovereign Debt: Recovery and Sustainability

Sayantan Ghosal, Marcus Miller () and Kannika Thampanishvong

No 2010-100, SIRE Discussion Papers from Scottish Institute for Research in Economics (SIRE)

Abstract: One of the striking aspects of recent sovereign debt restructurings is, conditional on default, delay length is positively correlated with the size of haircut. In this paper, we develop an incomplete information model of debt restructuring where the prospect of uncertain economic recovery and the signalling about sustainability concerns together generate multi-period delay. The results from our analysis show that there is a correlation between delay length and size of haircut. Such results are supported by evidence. We show that Pareto ranking of equilibria, conditional on default, can be altered once we take into account the ex ante incentive of sovereign debtor. We use our results to evaluate proposals advocated to ensure orderly resolution of sovereign debt crises.

Keywords: Debt restructuring; delay; haircuts; growth; sustainability; information; incentives (search for similar items in EconPapers)
Date: 2010
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Working Paper: Delay and Haircuts in Sovereign Debt: Recovery and Sustainability (2010) Downloads
Working Paper: Delay and Haircuts in Sovereign Debt: Recovery and Sustainability (2010) Downloads
Working Paper: Delay and Haircuts in Sovereign Debt: Recovery and Sustainability (2010) Downloads
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