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Sovereign Default and the Choice of Maturity

Juan Sanchez, Horacio Sapriza and Emircan Yurdagul ()

No 2014-31, Working Papers from Federal Reserve Bank of St. Louis

Abstract: This study develops a novel model of endogenous sovereign debt maturity choice that rationalizes various stylized facts about debt maturity and the yield spread curve: first, sovereign debt duration and maturity generally exceed one year, and co-move positively with the business cycle. Second, sovereign yield spread curves are usually non-linear and upward-sloped, and may become non-monotonic and inverted during a period of high credit market stress, such as a default episode. Finally, output volatility, sudden stops, impatience and risk aversion are key determinants of maturity, both in our model and in the data.

Keywords: Debt Crises; Restructuring; Yield Curves; Bond Duration; Debt Dilution. (search for similar items in EconPapers)
JEL-codes: F34 F41 G15 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-opm
Date: 2014-10-27, Revised 2017-09-24
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DOI: 10.20955/wp.2014.031

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