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Sovereign Debt Restructurings: Preemptive or Post-Default

Tamon Asonuma () and Christoph Trebesch ()

Munich Reprints in Economics from University of Munich, Department of Economics

Abstract: Sovereign debt restructurings can be implemented preemptivelyprior to a payment default. We code a comprehensive new data set and find that preemptive restructurings (i) are frequent (38% of all deals 1978-2010), (ii) have lower haircuts, (iii) are quicker to negotiate, and (iv) see lower output losses. To rationalize these stylized facts, we build a quantitative sovereign debt model that incorporates preemptive and post-default renegotiations. The model improves the fit with the data and explains the sovereign's optimal choice: preemptive restructurings occur when default risk is high ex ante, while defaults occur after unexpected bad shocks. Empirical evidence supports these predictions.

Date: 2016
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Published in Journal of the European Economic Association 1 14(2016): pp. 175-214

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Journal Article: SOVEREIGN DEBT RESTRUCTURINGS: PREEMPTIVE OR POST-DEFAULT (2016) Downloads
Journal Article: Sovereign Debt Restructurings: Preemptive or Post-Default (2016) Downloads
Working Paper: Sovereign Debt Restructurings: Preemptive or Post-Default (2015) Downloads
Working Paper: Sovereign Debt Restructurings: Preemptive or Post-Default (2015) Downloads
Working Paper: Sovereign Debt Restructurings: Preemptive or Post-Default (2015) Downloads
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