Sovereign debt crises: could an international court minimize them?

Aitor Erce

No 142, Globalization Institute Working Papers from Federal Reserve Bank of Dallas

Abstract: This paper discusses the merits of the statutory approach to sovereign debt crises. It presents a model of sovereign debt roll-overs where, in the event of a liquidity crisis, a Sovereign Bankruptcy Court has powers to declare a standstill on debt payments. The model shows the ability of the Court to mitigate the coordination problem inherent to roll-overs in sovereign debt markets. Moreover, the scale of the coordination problem is reduced regardless of the quality of the information handled by the Court. The mere existence of the Court forces investors to focus on its course of action rather than on other investors beliefs. Nonetheless, such an entity might affect negatively countries? incentives to apply costly policies.

Keywords: Bankruptcy; Globalization (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-cta
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Persistent link: https://EconPapers.repec.org/RePEc:fip:feddgw:142

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